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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from employment

Rajesh has been engaged by a company to deliver a three-month IT project. He decides his own working hours, uses his own laptop, bears the cost of correcting defective work at his own expense, and may send a substitute of his choice to do the work. Which conclusion is most consistent with the factors used to decide employment versus self-employment status?

Rajesh is likely self-employed. A genuine right to send a substitute, financial risk for defective work, use of his own equipment and control over his hours all indicate a contract for services, and neither the project's length nor the payment makes him an employee.

  1. AHe is likely to be self-employed, because the right of substitution, financial risk and control over hours point away from a contract of serviceCorrect
  2. BHe is likely to be an employee, because the engagement is full-time for three months
  3. CHe is likely to be an employee, because the company is paying him for his time
  4. DHe is likely to be self-employed only if he issues invoices with VAT added

Explanation

Status is judged on the overall picture of the working relationship. An unfettered right of substitution, bearing the cost of defective work, using own equipment and controlling hours all indicate a contract for services. Duration alone or the fact of payment does not make someone an employee, and VAT invoicing is not decisive.

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