What counts as self employment?

What counts as self employment?

That is a really good question actually, and assumed that most people who wanted to work for themselves automatically knew what is and isn't but judging by the amount of times people ask me, or I see the question in forums I thought I would just give a brief summary here if you you feel you need a bit of a run down.

Obviously you will need to check the rules in your home country but I don't imagine they are too far from how we operate here in the UK.

But, as I say, please do check so you don't fall foul of any local laws.

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The general and simple to understand rule is that you will be:

An employee: if you work for an employer and you do not have the risks of running a business.

Self-employee: if you have a trade, profession, or vocation, are in business on your own account and are responsible for the success or failure of that business.

Why is it important to know if I am employed or self-employed?

Whether you are employed or self-employed will make a difference to the amount of tax and NIC (National Insurance Contribution) you have to pay, as well as how you pay it.

  • If you are an employee, your employer is required by law to operate Pay As You Earn (PAYE) tax and Class 1 National Insurance contributions on your wages and pay it to HM Revenue & Customs (HMRC) on your behalf.
  • If you are self-employed, you pay income tax through the Self-Assessment tax return system, as well as Class 2 and Class 4 National Insurance contributions directly to HMRC.

It is important to know if you are employed or self-employed for employment law purposes too.

Finally, and this may vary in your home country, it is important to know if you are employed or self-employed because your tax credits or universal credit status if applicable may also follow your employment status for tax purposes.

Important note: The distinction between employment and self-employment is not always clear; some businesses try to exploit people looking for work, by treating them as self-employed when they should be treated as an employee. This is known as ‘false self-employment’.

This might be relevant to you if you want to work for yourself and offered an opportunity by a third party that looks attractive but actually isn't!

I have seen this "opportunities" pop up on Recruitment Sites.

You may think you are short cutting your way to your own business, the adage of "if it looks too good to be true then it probably is" might apply here.

This means the business avoids operating Pay As You Earn (PAYE) and so does not make any payments of tax and National Insurance in respect of your wages to HM Revenue & Customs (HMRC).

In certain circumstances, HMRC could demand the PAYE payments that should have been made by the business from you if they believe you should have been treated as an employee and were not, although they should approach the business first.

So be wary if:

  • you are offered work and given a choice of being an employee or self-employed;
  • someone you are going to work for tells you that you are self-employed.

Instead, make sure you understand your employment or self-employment status for yourself before you start work. If you think that something is wrong, you might want to challenge the business that is offering you the work or contact HMRC.

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What counts as self employment? Here is an easy way to work it out

  • You are self employed if you complete work for others under your own steam:
  • You agree to do the work for a customer, but you can send someone else to do the job for you, for instance, a builder who can send another person with similar skills in their place. You will provide all of the tools to complete the job, either your own or they could be hired.
  • You probably have several customers at the same time. You can do the work how, where and when you like, for example, a writer who agrees to write a book and can write whenever they want to, as long as they meet the deadline set by the contract.
  • You run a business and take responsibility for its success or failure, such as a seller on Etsy who sells soap or candles or digital items.

That said,  don't bank on just this information.

You have to weigh a number of different factors together to get an overall picture please see the

really useful table on this page, it makes it VERY CLEAR

Note that you will not automatically be self-employed just because you have an existing Unique Taxpayer Reference (UTR) and submit tax returns each year, your position lacks permanency, or you provide your own small tools, READ THE TABLE shown on the page in the link above.

I will repeat this again, if you are not sure, ring your local tax office and they will put you straight, best you know in advance what counts as self employment before you begin any project seriously.

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