ESM11085 - Check Employment Status For Tax: Financial risk

Where an individual incurs a significant financial risk, with a view to making a profit, this will suggest they are running a business and are self-employed for tax purposes. A low level, or absence, of financial risk does not, by contrast, mean a worker will always be an employee. You can find more detailed guidance on financial risk at ESM0541

CEST addresses the level of financial risk by understanding the costs a worker might face in order to undertake the work and for which they will not be directly reimbursed. These are broken down into four broad categories;

• Equipment costs
• Vehicle costs
• Material costs
• Other costs

In HMRC’s view, for costs to be considered when assessing employment status they must significant and incurred as a requirement of the contract. Whether costs are significant will depend upon the value of the contract. Costs a worker chooses to incur through personal preference are not relevant. Everyday items that a worker might have for both work and personal reasons such as laptops, tablets and mobile phones are not indicative of financial risk.

A worker can also incur financial risk if they must put right faulty work. Having to do this in their own time and at their own expense is a pointer to self-employment. If a worker does this whilst still being paid, or suffers no financial consequences, it points more towards employment.