Financial Risk and Payment
Financial risk and payment are one of the main differences between employment and self-employment.
As explained earlier in Hall v. Lorimer, Lorimer had to take work on a first come first served basis. Obviously, there were times he was unable to accept work even though he did occasionally use a substitute. In the period of just over 4 years, Lorimer worked for 800 days (out of approximately 1,050 days). In addition, he was also registered for Value Added Tax (VAT) and had some Clients who didn't pay for a few months.
In the case of McMenamin v. Diggles, Diggles agreed to a ‘Full Clerking Service’ at his own expense in return for 8.3% of the barrister's gross earnings. Clearly, there is a financial risk as his earnings are based on a percentage of the barrister’s income.
There could be a risk that the substitute could cost more than the costs the Contractor receives. Conversely, in the Hall v. Lorimer case, when Lorimer used a substitute he made a profit, as his fee from the Client was more than he paid the substitute.
Article supplied by Ray McMahon of Tax and Nic.