'CEST Explained' – contractors, here’s why your contract is vital
CEST user guidance on Worker Contracts
This section of CEST is likely to need input from the worker, and whoever is using the tool needs to have a copy of the worker’s contract.
It may be that if the worker is provided through an agency there will be an upper and a lower contract. The upper contract is between the agency and the client and the lower contract is between the agency and the worker or the worker’s limited company.
You will need to check that the relevant terms in the upper and the lower contract mirror each other if you are to accurately answer the question. If they do not mirror each other, you will need to check whether there is any variation to the contract terms or anything different in the working practices that will confirm the position.
In business on your own account
This section is also looking at whether the worker is ‘in business on their own account’. This is a phrase that comes from case law and describes the badges of trade or factors that evidence whether a person is considered to be running a business. Running an independent business is a pointer towards self-employment. This will require the consideration of factors that go beyond the direct contractual terms agreed between the parties.
Length of engagement
It is possible for a worker to be an employee for a short period of time and for a worker to be employed in one role and self-employed in another, during the same period of time.
HMRC also state, however, that the length of the engagement in itself is neutral in determining the employment status. They say it is more likely that other factors will come into play the longer the engagement, such as being integrated into the organisation and control factors.
This section also deals with exclusivity or restraint of trade. Restricting the worker’s right to work elsewhere or with another client might suggest that the worker is not engaged in an independent business. The absence of an obligation to provide exclusive services, however, is not necessarily a pointer towards self-employment.
There may be instances where exclusivity is acceptable, for example, an author will usually only write for one publisher. An agent may be restricted from selling another company’s products.
A full-time worker could only exercise their right to work for others by working outside the normal working week and this may effectively preclude them from taking other jobs, making an exclusive services requirement unnecessary.
Where a worker retains ownership of intangible assets, or the intellectual property they have created during a contract, or sells them to the hirer once the work has completed and outside of the original contractual arrangements, this is an indicator that the worker is running an independent business. Intellectual property might include copyright, trademarks, image rights or patents.
Similarly, if ownership and/or the ability to exploit such assets sits with the hirer, then this is more indicative of an employment relationship.
Series of contracts versus having just a single client
Understanding whether a worker has had previous contracts with the hirer and are likely to have future contracts with the same hirer, can help paint a picture of how the worker provides their services to that client.
Looking at how the contractual relationship evolves can be a potential indicator as to how enduring the relationship with the client is. A more enduring relationship with the client can be a pointer towards employment.
An individual may, however, have a number of short-term contracts with more than one engager which looked at individually would amount to employment but looked at together amount to self-employment.
On the other hand, the individual may start to work for just one engager because of better pay and conditions, or ease of travel among other factors. The underlying position may not change in that there is still a series of separate contracts but where that happens, the individual is likely to continue working under a series of contracts for services and to remain self-employed.
Someone starting up in business may begin with only one engager despite trying to engage with others. The worker may continue to work in that way but only manage to obtain work for part of the time through short term contracts from one engager. The fact that only one engager is involved would not necessarily mean those engagements are employments.
A worker who has multiple clients consecutively or concurrently is likely to be running a business, whereas HMRC says that a worker who works for a single client for a long period is unlikely to be running a business. Generally, a self-employed worker is less likely to be financially dependent on a single hirer.
Editor’s Note: Text above exactly as published in Rebecca Seeley Harris’s ‘CEST Explained’ except for small additions like sub-headlines to aid readability in this excerpting, which is exclusive to ContractorUK.