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Sole traders: employment status in practice

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The tests that decide whether a sole trader is genuinely self-employed, and what an engager carries if the answer turns out to be no.

Status is decided on the facts

Nothing about registering as self-employed settles employment status. It is decided by how the work is done, and it can be decided differently by HMRC and by an employment tribunal for the same engagement.

The label on the contract is evidence, and it is the weakest evidence available.

What is actually examined

  • Control over what is done, how, when and where.
  • Whether a genuine right of substitution exists and could be used in practice.
  • Whether there is any obligation to offer or accept further work.
  • Financial risk: who bears the cost of correcting defective work, who provides equipment, whether a profit can be made by working efficiently.
  • Integration: whether the person is presented to the world as part of the organisation.

What the engager carries

If the arrangement is recharacterised, unpaid PAYE and National Insurance, interest and penalties fall on the engager, not on the worker. Employment rights claims can follow separately.

This is why many clients now refuse sole trader engagements even where they would probably be defensible.

The safer route

Where the working pattern looks like employment, using an employment model removes the argument entirely — and costs less than defending it once.

Daniel Okafor

Daniel Okafor

leads contractor payroll operations at Promultis

Daniel Okafor runs the payroll operation that pays several thousand contractors every week, and he built most of it. He joined Promultis from a large umbrella provider, where he was responsible for RTI submissions and auto-enrolment across a book of forty agencies. Daniel works closely with recruitment partners on onboarding, same-day payments and the reporting hirers need for their own audits. He writes about the practical side of contractor engagement — the parts that decide whether a worker stays past their first assignment.

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