Employment Status Tax Test Calculator

Employment status determines whether someone is an employee (subject to PAYE and employer/employee NIC) or self-employed (subject to Class 4 NIC and Self Assessment) for tax purposes. It's separate from legal employment status for employment rights purposes.

IR35 (the off-payroll working rules) prevents contractors from using personal service companies (limited companies) to avoid employment taxes when they are functionally employees. If IR35 applies, the contractor's company income is treated as deemed employment income, subject to full PAYE and NIC.

CEST (Check Employment Status for Tax) is HMRC's online tool for determining employment status. It asks questions about the working relationship and gives a determination. HMRC will stand behind CEST determinations in disputes (provided information is accurate and complete). Our calculator uses similar factors as an indicative guide.

The three primary tests are: (1) Substitution — can you send someone else to do the work? (2) Control — does the client control how, when, and where work is done? (3) Mutuality of Obligation — must the client offer work and must you accept it? These tests come from case law (Ready Mixed Concrete, Lorimer).

Since April 2021 (and April 2017 for public sector), medium and large businesses that engage contractors must determine IR35 status. The client (end user) makes the determination via a Status Determination Statement (SDS). Small businesses are exempt — the contractor determines their own IR35 status.

If a contract is 'inside IR35', the client or agency must deduct PAYE and NIC from payments as if the contractor were an employee. The contractor's company receives net payments with PAYE already deducted. The contractor can still use a limited company structure but loses the main tax benefit.

Yes — contractors can challenge an SDS through the client's disagreement process. If unresolved, disputes can be taken to the First-tier Tax Tribunal. The burden of proof lies with HMRC in tribunal proceedings. Many IR35 cases have been won by contractors on the facts.

Inside IR35 contractors can claim expenses that a 'hypothetical employee' doing the same job could claim (e.g., professional subscriptions, genuinely business-only equipment). However, travel and subsistence to the client's site is not deductible — HMRC treats it as a commute for inside-IR35 workers.