ESM11115 | Check Employment Status For Tax: Financial risk – Putting work right

CEST asks ‘If your organisation was not happy with the work, would the worker have to put it right?’ or ‘If the client was not happy with your work, would you have to put it right?’

We ask this question to determine if you have significant financial risk due to you having to correct work. If that resulted in you making a loss from the contract or incurring additional significant expense, this would be an indication of self-employment,

For further guidance on financial risk see ESM11085

If a worker must put right faulty work and bear significant cost doing this, it would fall within the ‘Yes, unpaid and they/you would have extra costs that the hirer/you would not pay for’ category for CEST.

If a worker must put right faulty work and do not incur any tangible costs to put it right, but suffers opportunity cost due to this time it takes to rectify, this would fall within the ‘Yes, unpaid but their/your only cost would be losing the opportunity to do other work’ category for CEST. Opportunity cost for CEST is losing the ability to earn money elsewhere as the worker must spend the time putting right errors.

If a worker does put right errors but the hirer pays the worker their normal rate or fee for doing so and the worker does this during normal working hours for the hirer, this would fall within the ‘Yes, they/you would fix it in their/your usual hours at their/your usual rate or fee, category for CEST.’

If a worker cannot put right errors because the task the worker was hired for is a one off event that is now over or the task was relevant only to a particular point in time then this falls within the ‘No, the work is time-specific or for a single event’ category for CEST.

If a worker does not have to put right errors and the task wasn’t a one-off or time specific, then this would fall within the ‘No’ category for CEST.

EXAMPLE

Sandeep provides a service to a number of hirers, occasionally these do not meet the required standard and must be corrected.

• Sandeep pays for new materials to put right the error at his own expense and corrects the work in his own time, this is unpaid and an extra cost to Sandeep. If the cost is significant in relation to the value of the contract, then the CEST question will be answered as ‘Yes, unpaid and you would have extra costs that your client would not pay for’.

• Sandeep rectifies the work, but the hirer pays for the materials. Sandeep does this unpaid rather than taking on work for someone else and he lost the opportunity to do other work. If this results in the work taking significant additional hours for Sandeep to complete, then the CEST question will be answered as ‘Yes, unpaid but your only cost would be losing the opportunity to do other work’.

• If the hirer pays Sandeep his normal rate and he puts right the errors during his standard working day, this would not be considered as significant financial risk. Neither additional time nor money has been expended by Sandeep. The CEST question will be answered ‘Yes - you would fix it at your usual hours and the usual rate of pay, or for an additional fee’.

• Sandeep is hired to undertake work at a one-off event where it is not possible to put right any errors due to the time specific nature. The CEST question will be answered as ‘No - the work is time specific or for single event’. Sandeep cannot correct any errors, therefore neither additional time nor money has been expended by Sandeep.

• If the hirer does not require errors to be put right, for example they get other providers to put right errors as part of a quality control process, then this would fall within the ‘No’ category for CEST. Sandeep is not required to correct the work or rectify the work therefore there is no additional time or money expended by Sandeep.