UK Self Employed or an Employee?

How do you establish if you are self employed or an employee for UK tax purposes.

There is no actual no legal definition of what employment or self-employment is and it is based on previous judgments which are commonly referred to as ‘case law'.

There are some key points to take into account in deciding the status of an individual for Income Tax purposes in the UK.

Self employed business traders have some key distinguishing pointers and that self employed persons are able to :-

Manage and operate their own business making all the required key decisions.

Take full responsibility for the success or failure of their business.

Decide how, where and when they carry out their work

Hire other persons to do the work that is required the cost of which is borne by them.

Provide the plant, equipment and motor vehicles that you use to carry out the work

You are free to take holidays and time off when you want to

Usually have more than one client or customer at the same time. This is not exclusively as some trades such as motor cycle courier are self employed but may only be providing services for one courier service only. I will explain this in more detail later in this article

People who are employees will usually:-

Work for one employer at a time and they are in charge of the work that you do. They take all the inherent risks of the business.

Be directed by their employer as to how to perform their work and as to when and where you perform your duties.

Will be required to work a pre set amount of hours each and every week.

Will qualify for paid holidays but can only take these holidays in line with your terms of employment as regards their length and timing.

Will benefit from being paid the same fixed amount depending on the hours that they actually work, and get paid for working overtime. Casual or work of a part-time nature can still mean that you are self-employed.

One example of persons who are considered self employed when they have one source of income are self employed motor cycle couriers. Despite possibly only providing services for one courier company they are generally treated as self employed because of how they work. They have no guarantee of work and are dependent on work being provided. So if there is no work they do not get paid and then they must be self employed as they are taking some financial risk. Also they supply their own Motor Cycles which they use for their work.

It is possible to both self-employed and in self employment simultaneously indeed one could be working for an employer during the day and involved running your own self employed business at the week ends or in the evenings.

Each contract either of service or of employment must be considered independently and it is possible as explained above that one could be both that is self-employed under a contract of service and one as an employee under a contract or employment.

If you are not sure you should take independent advice from an Accountant or somebody who specialises in this. My experience is that if you go to the tax office they do not have much real knowledge at a junior level and always tend to suggest that one is an employee. That way they keep their jobs and collect more tax for the Government.

Whether one is an employee or self-employed depends simply on the facts of the actual working arrangements and the terms an d conditions contained in the contract as these factors all need to be considered at the same time.

If you are self employed then you will of course be responsible for your own tax and National Insurance contributions.

You will need to advise HM Revenue & Customs (HMRC) by registering with them within 3 months of commencing employment. It is possible to download a registration form from the HMRC web site or you can can register by making a call to the Newly Self-employed Helpline on 0845 915 4515 which is open 8.00 am to 8.00 pm Monday to Friday and 8.00 am to 5.00 pm Saturday and Sunday.

You will also need to file a Self Assessment tax return with in the required time limits and make payments on as required for National Insurance and Income Tax

If you are employed then the burden for actually deducting and paying your tax and National Insurance contributions will fall on your employer. This will be dealt with by the PAYE (Pay As You Earn) system. With this system you need to make sure that you have been given the correct code number and are not on an emergency or week 1 basis.

If you are you are taxed either on a week 1 code or on emergency you will often be over taxed and may be due a tax refund at the end of the tax year.

The Author writes many articles on reclaiming UK Income Tax and for further information one of his web sites is at PAYE Tax Refunds.