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ESM11100 | Check Employment Status For Tax: Financial Risk - Material Costs

From HM Revenue & Customs · Employment Status Manual

CEST asks 'Will the worker have to buy materials before your organisation pays them?' or

‘Will you have to buy materials before your client pays you?’

We ask this question to see if you have significant financial risk from material costs. If that could result in you making a loss from the contract, this would be an indication of self-employment.

For further guidance on the financial risk questions see ESM11085

If a worker has to supply substantial materials and either cannot obtain reimbursement or faces the risk of financial loss should the contract not be paid, this falls within the ‘Yes’ category for CEST.

If a worker incurs costs on small or incidental items such as stationery, low cost consumables (such as fuses, nails, paint, shampoo etc.) or items which are not a lasting part of the final product, then this would fall within the ‘No’ category for CEST.

EXAMPLE

  • Piotr is engaged to perform a task. The hirer supplies materials to Piotr at cost price amounting to approximately 5% of the income he will receive for undertaking this work. The cost of these materials is not significant. These costs should not be considered when completing CEST.

  • Anita is engaged to perform a task. Anita must provide all the materials that will be used in producing the end product. These materials are bought by Anita at her own expense and are bought before any payment is received. These materials cost approximately 40% of the income she will receive for undertaking this work. The materials form a lasting part of the product, and the cost is significant, so these costs should be included when completing this CEST question.

  • Petra is engaged to perform a task. Unlike Anita, Petra charges her engager/hirer the cost of the materials to be used up front, so effectively the hirer has paid the cost of the materials to be used in the completed product. These material costs should be ignored when considering this CEST question. Petra has not been subjected to financial risk in relation to the materials used