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Contractor Services

Contractors and subcontractors provide services in a wide variety of industries.  But issues frequently arise as to their legal status and this raises questions about their legal rights and tax treatment.

Contractor, worker or employee

There are 3 possible legal classifications of a person appearing to work as a contractor.  They may be genuinely self-employed. They may be a ‘worker’ which is someone who provides their services personally but who is not self-employed. Or they may be employed. Their legal status depends on the courts and tribunals applying tests to see what the true nature of the relationship is. These include the control test, the integration test and an assessment of whether a person is in business on their own account. If there is no obligation on the contractor to provide their services personally, there is no employment relationship. For this reason, substitution clauses are frequently used to try to ensure that a person will be classed as self-employed, although to be effective the clause must be genuine and capable of being operated in practice.  If a person is engaged through a service company it less likely, but by no means impossible, that they will be classed as an employee.

Consequences of status

If a person is in fact an employee they will have a number of statutory employment rights which are not afforded to a worker or self-employed contractor. These include the right not to be unfairly dismissed, the right to statutory sick pay and the right to statutory notice. A worker has some rights including holiday entitlement.  A contactor has none of these rights and the rights they do have are largely dependent on the terms of the contract with the organisation for whom they are working.  Employees are taxed through the PAYE system whereas workers and the self-employed pay tax through self-assessment.  If there would have been an employment relationship but for the fact that a contractor is engaged through a service company then the service company will be subject to the IR35 charges.

Our solicitors regularly advise on legal status and draft contractor contracts and subcontracts together with related documents.

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Lawbridge Grant Saw
Roxby House
20-22 Station Road
Sidcup
Kent DA15 7EJ. 

Email UsTel : 020 8308 3610
Fax : 020 8338 3070

 

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