Employment tax

If you are working then you need to distinguish between whether you are employed or self-employed. There are various rules that determine which one you are. The way the income is taxed is different in each case.

If you are an employee, your earnings which are liable to income tax will have tax deducted at source (by your employer) under Pay As You Earn (PAYE). Benefits provided by your employer will generally be taxed by being included in your PAYE code. Expenses in your employment will be deductible, but only if they are wholly, exclusively and necessarily incurred.

In addition to income tax being deducted, national insurance contributions are also deducted via the PAYE system.

Rules: employed vs. self-employed status

The rules determining whether a person is employed or self-employed are complicated. In deciding which one applies, case law will be considered.

If you are an employee you have a contract of service, whereas if you are self-employed you have a contract for services.

Set out below are some of the areas that are looked at in trying to determine which category you fall into:

• Are you ultimately responsible for how the business is run?
• Can someone tell you what to do and how to do it?
• Does someone provide you with holiday and sick pay?
• Do you have to correct unsatisfactory work in your own time and at your own expense?

Expenses travelling to a temporary workplace

The rules regarding mileage claims for travel from home to a temporary workplace changed with effect from April 1998. Prior to this date the normal mileage between home and the permanent workplace reduced the mileage claimed. From April 1998, relief can be claimed for the full amount of miles from home to the temporary workplace.

However, a temporary workplace will be disregarded if the travelling to it is not regarded as substantial. No relief for the mileage claim will be allowed, e.g. an employee who normally travels 20 miles to his place of work and has to travel a further 2 miles to the temporary workplace.