Self-employment cannot be used as a tax smokescreen for contracted employees
Employers and business owners engaging contractors or consultants, including through personal service companies.
A tribunal-led reminder that labelling an engagement as “self-employed” does not override the reality of the working relationship for tax purposes.
Where HMRC successfully challenges employment status, businesses can face retrospective PAYE and National Insurance Contributions (NICs), interest, and penalties.
Case background: employment status and off-payroll rules
A complex celebrity case arose recently in which the First-tier Tax Tribunal (FTT) was asked to consider the application of the intermediaries’ legislation (IR35), otherwise known as off-payroll working, to payments made by Manchester United Football Club (MUFC) to Bryan Robson Ltd.
This appeal was in relation to determinations of income tax made under Reg. 80 of the PAYE Regulations and s31 of the Taxes Management Act (TMA) 1970 for personal appearances provided to MUFC by Bryan Robson Ltd. as a ‘global ambassador’ from 2015/16 to 2020/21. Those agreements included a licence for MUFC to exploit Mr. Robson’s “image rights” and required the former England star to make 35 personal appearances per year at MUFC’s request for a fixed sum.
Although the image rights were not subject to the IR35 legislation and were left to be decided separately, and the additional tax due under the IR35 rules is to be determined.
This technical tax case highlights the intricate factors that determine employment status under IR35 and anyone providing such personal services, including freelancers, content creators, and contractors, has to demonstrate a high level of autonomy to be considered truly self-employed and present watertight contracts to HMRC.
Why this case matters for employers
This decision reinforces a long-standing principle in UK tax law: employment status is determined by substance, not labels. Even where services are provided through a company and described as self-employment, HMRC and tribunals will examine the underlying reality of the engagement.
For businesses, the key takeaway is that contractual wording alone is not decisive. If the working arrangement points toward employment-like control, obligation, or integration, IR35 and PAYE consequences can still arise.
Risks and consequences of getting status wrong
Where HMRC concludes that a contractor should have been treated as an employee, businesses may face:
- Retrospective PAYE income tax assessments
- Employer and employee Class 1 NICs
- Interest on underpaid tax
- Penalties where HMRC considers the error careless or deliberate
- Wider scrutiny of other contractor arrangements
HMRC guidance makes clear that employment status decisions are fact-specific and may be challenged where arrangements are structured primarily to avoid tax. HMRC: Check Employment Status for Tax (CEST)
In practice
In practice, we often see businesses rely on “self-employed” labels or company structures without fully testing whether the day-to-day working reality supports that position. Tribunal decisions like this one show that HMRC will look closely at control, expectations, and the commercial nature of the relationship — not just the paperwork.
Review whether your engagement model risks HMRC challenge
If you are unsure whether your contractor arrangements genuinely reflect self-employment or whether HMRC could challenge the status a focused review now can help prevent unexpected tax liabilities and disputes later.
Frequently Asked Questions: Self-Employment and Tax Rules for Contractors in the UK (2026 Guide)
Can self-employment be used to reduce tax for contracted employees?
No, self-employment cannot be used as a tax workaround if the working relationship is effectively employment. HMRC looks at the actual working arrangement, not just the contract, and may reclassify income, leading to additional tax and penalties.
How does HMRC determine if someone is self-employed or employed?
HMRC assesses factors such as control, substitution rights, financial risk, and mutual obligation. If a contractor works like an employee, they may be treated as employed for tax purposes regardless of their contract terms.
What are the risks of misclassifying employment as self-employment in 2026?
Misclassification can result in backdated tax, National Insurance liabilities, penalties, and interest charges. HMRC may also investigate both the contractor and the engaging business for non-compliance.
What is disguised employment and why is it important?
Disguised employment occurs when an individual is treated as self-employed but works under conditions similar to an employee. This is closely monitored by HMRC and can trigger compliance checks and tax adjustments.
How do IR35 rules affect contractors in the UK?
IR35 rules determine whether a contractor should be taxed as an employee. If caught under IR35, income is subject to PAYE and National Insurance, reducing the tax advantages of operating through a limited company.
Can contractors still claim self-employed allowable expenses?
Yes, but only if they are genuinely self-employed. If classified under IR35 or as an employee, allowable expense claims are restricted, which can increase the overall tax liability.
What should contractors do to stay compliant with HMRC rules?
Contractors should review contracts regularly, maintain clear working practices that support self-employment status, and seek professional advice. Proper documentation helps demonstrate genuine self-employment.
Need Help With Correctly Determining Your Employment Status for Tax?
HMRC looks at the reality of your working arrangements, not just your contract, when deciding whether you are genuinely self-employed. Getting this wrong can lead to unexpected tax and National Insurance liabilities.
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