Checklist: Am I Self-employed?
Self-employment can be a confusing topic. Many people are surprised to find that they are legally classed as self-employed – and have to deal with the fairly onerous consequences. Similarly, many people are unaware that they are required to complete and return an annual Self Assessment tax return.
Determining whether or not you are self-employed for legal purposes can be a difficult process. We have compiled a simple checklist to help you find out.
Employed or Self-employed?1.Do you run your own business?
Self-employed people are often responsible for the key decisions regarding a business. They tend to take responsibility for its success and for its failure, and may be financially affected.
2.Do you have a number of clients?
While employees normally work for a single company, self-employed people may have a range of clients for whom they do work simultaneously.
3.Can you provide a substitute?
Self-employed people are generally free to provide a substitute, at their own expense, to complete work for which they are hired. Employees must complete the work themselves.
4.Can you choose your own hours?
Self-employed people are often able to determine their own hours, and decide where they wish to work. Employees, on the other hand, are generally required to attend a certain workplace at specific times.
5.Do you provide your own equipment?
Self-employed people generally provide the equipment they need to complete the work – whether that is a laptop or complex machinery. Employees will generally have equipment provided by their employer.
6.Do you get paid according to the amount of work you provide?
Self-employed people are generally paid a fee for a specific amount of work completed, rather than a salary. They will not be paid overtime.
ResultsIf you answered mostly ‘yes’ to the questions above, it is likely that you are self-employed for legal and tax purposes. If you answered mostly ‘no’, you are probably an employee.
Self employment has a number of important consequences. To begin with, rather than paying tax through the Pay As You Earn (PAYE) system, you will almost certainly have to pay through the Self Assessment process. This means that you will have to complete an annual tax return, and pay any tax you owe directly to HM Revenue and Customs. There is a series of deadlines during the year to which you must adhere; these are outlined elsewhere on this site.
Self-employed people need to take extra care when drafting contracts with clients. As a result of the controversial IR35 legislation, HM Revenue and Customs frequently challenges these contracts in an effort to prove that self-employed people are, in fact, employees. This can result in significantly less favourable tax treatment. You may wish to read our guide to IR35, also elsewhere on this site, for more information on this important legislation.
It is important that you are aware of your own employment status, for legal and tax purposes. HM Revenue and Customs generally cannot advise on specific cases, but if you are in any doubt an accountant should be able to help.