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employment is too difficult to accept, that it is still possible for such a person to enter into a contract of service or an office. The matter then becomes one of the fact—and one is back to the distinctions drawn by Lord Donovan.

3. The costs of acquiring the office will not be deductible under ITEPA but will usually be deductible under schedule D, cases I and II.⁹⁴
4. Solicitor trustees receiving annuities from the trust fund for acting as trustees have traditionally been taxed on the receipt under schedule D, case III, with deduction at source under TA 1988, sections 348 and 349. However, as an office, the post of trustee ought to fall within ITEPA.
5. ITEPA and its predecessor, schedule E, have operated for over 50 years under the PAYE system and on a current year basis. Until recently, schedule D taxpayers were taxed on a preceding year basis and are still not subject to PAYE.
6. The capital allowance structure is much wider for trades than for employments.

13A.2.3.3    Commentary

The income tax system draws a sharp distinction between the employed and self-employed. Yet income tax is not alone in doing this; the distinction is also fundamental (confining oneself to tax law) to social security contributions and benefits, and to VAT. In statistical terms the distinction is probably more significant than that between capital and income. As will be appreciated, the advantages and disadvantages of classification are mixed. However, there has been little effort until recently to quantify them. What makes matters worse is that although the distinction may be easy to state, it is not easy to apply. Moreover it has become particularly hard to apply many changes in work practices in the 1990s, for example casualisation and home-working. An important comparative survey shows that other countries have the same problems and that this is a very fraught area, with the self-employed arguing keenly to protect their interests.⁹⁵ One solution would be to align the different tax rules so as to reduce the significance of the distinction; another would be to make status easier to determine, for example by de-linking the tax status from other rules and stating that tax classification can be different from labour law or tort. Perhaps Rowlatt J was right after all in looking at the overall situation and not just the particular contract. Some of these issues may become clearer, but not necessarily easier, when the Contributions Agency merges with the Inland Revenue. What makes the matter more urgent is the suspicion that women are more affected by these distinctions than men; such suspicions have been known to excite the attention of the European Court.

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