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Okay, first up, I'm not a legal person...

However, I do run my own business (a transcription service), and my accountant has always advised me that if someone works only for me, at times I have set, using the equipment I have provided, for my clients, then they are employed and should be set up with PAYE, etc.

So, going by that advice, Gary Smith should have been an employee, not self-employed, paying his own tax etc.