Income Tax Essay

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Assessment task 1 Outcomes covered 1 and 2 Q1 The test which would be applied to Katy's situation by HMRC in deciding whether she is employed or self-employed would be the Employment Status Indicator (ESI) tool. The ESI is a series of questions that cover: Employment type, responsibilities within the role and who completes the work. HMRC would consider Katy to be self-employed as she met the guidelines for self-employed In order to answer this question it is necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters. The main elements of a valid contract of service (employment), or a contract for services (self-employment), are: The intention to enter into legal relations An offer (usually of work) and its acceptance (an agreement) Consideration (for example, in return for performing works the worker receives payment). Once it is established that a contract exists, it is then necessary to establish the terms and conditions of work agreed between the worker and the engager and, having completed this exercise, to apply case law laid down by the courts over the years. The basic approach of the courts is to identify the factors present; weigh those that point to self-employment against those that point the other way; and then stand back and consider the picture that emerges. There are, however, certain factors that must be present in a contract of service Provision of own equipment A self-employed contractor generally provides whatever equipment is needed to do the job (though in many trades, such

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