In 'employment' terms there are only three possible contractual relationships:

a) Employer/employee;
b) Contract/worker; and
c) Contract or sub-contractor

a) is governed by a contract of service.

b) and c) are both self-employed and governed by a contract of service. b) however, goes further in that the sub-contractor undertakes to perform personally a task or duty – they are unable to send someone else to do the work. In addition workers are entitled to some rights only associated with employees – for example paid holidays under the Working Times Regulations 1998.

However, it is a fact that HM Revenue and Customs have slightly different rules to the Employment Tribunal as to what precisely marks out the differences between the three types of relationships.

In general self-employed people should be in business on their own account. This can be categorised by:

• The original intentions of the parties as to what the relationship would be;
• Manner of payment e.g. tender, invoice, statement;
• The amount of control (includes mutuality of obligation); and
• Are they running a business i.e. VAT registered?; Have they an Accountant; do they work for numbers of contractors?

Where a genuine contractor/sub-contractor relationship evolves over a period of time, because the contractor has enough work to keep the sub-contractor busy and the sub-contractor is good at the work, both parties are happy to continue along together, there is a real risk that both HMRC and the Tribunal will look at the situation as it is now, and decide that since the sub-contractor only works for that contractor that the relationship has changed and it is now an employer/employee one – with all the problems that poses for tax, NI etc.

I am not aware of any percentages applied. That would not appear to be a realistic way to measure. Genuine sub-contractors will work for a number of contractors, moving on as each contract ends. The length of time will be relevant to the job/length of time necessary to undertake it etc. In a year the Revenue (and a Tribunal) would look at the pattern throughout the year. One relationship with one contractor for the whole time is therefore likely to lead to questions being asked.

See also: Sole trader or limited company?