Gertrude,
...er... I'm a Chartered Accountant. I am currently working as a contractor (so understand the issues involved) in an area involving fraud investigation (hence the profile) but I am not a tax inspector
So it's OK - you can still talk to me socially and you'll be pleased to know that my body is not composed of 85% spit!!
I would have thought in the case of flying instructors - if the instructor is freelance, can he find and bring his own students to the school or does the school find the students. Does the school around the flying times with the student or will the student do that directly with the instructor. Does the school make the profit or can the instructor pay a flat rate to the school for the hire of the aircraft. These are a couple of other scenarios which HMR&C may consider.
Cheers
Whirls