How do you establish if you are Self employed or an employee for UK income tax purposes.
There is no actual or legal definition of what employment or self-employment is as it is based on previous judgments which are commonly known 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 owners have many key distinguishing pointers and for example self employed persons are able to :-
Manage and operate their own business taking all the required key decisions.
Take full responsibility for the success or failure of their business.
Decide how, when and where they carry out their work.
Hire other persons to do the work that is required the cost of which is borne by them.
Purchase and provide the plant, equipment,fixtures and fittings and motor vehicles that are used to carry out the work
They are,of course, free to take holidays and time off when they want to.
Usually they will have more than one client or customer at the same time. This is not always the case as some trades such as motor cycle courier are treated as self employed but may only be providng services for one courier service on a subcontract basis. I will explain this in more detail later in this article.
Dealing with employees these will usually:-
Work for one employer at a time who is in charge of the work that is done by the employee. The employee how ever could have two or more employments perhaps a day job and a week end job.
They are directed by their employer as to how they should carry out their duties and as to when and where they perform the work.
They will be required to work a pre set amount of hours each and every week.
They will qualify for paid holidays but can only take these holidays in line with their terms of employment as regards their length and timing.
They will benefit from being remunerated at the same fixed amount depending on the hours that are actually worked, and get paid for working overtime.
Casual work or work that is of a part-time nature can still be classed as either employed or self-employed depending on the facts. The fact that it is casual or part time has nothing to do with their employment status.
Self employed motor cycle courriers despite possiby only provding services for one courier company they are generaly treated as self employed because of how they work. They have no guarantee of work and are dependent on work being allocated to them. So if there is no work they do not get paid and then they must be classed as self employed. They supply their own Motor Cycles and pay for their own fuel and running costs.
It is,of course, also possible to be both self-employed and in self employment simultaneously in that one could be working for an employer during the day and involved in running your own self employed business at the week ends or in the evenings.
Each contract whether it be one of service or of employment has to be considered independently on its merits. As mentioned it is possible that one could be both self-employed under a contract of service and be 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 field. My experience is that if you go to the tax office they do not have much real knowledge and always tend to suggest that one is an amployee. That way they keep their own jobs and collect more tax for the Govenrment.
Whether one is an employee or self-employed depends simply on the facts of the actual working arrangements and the terms and 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 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 as required for both 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 under 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,then quite oftenly, you are taxed either on a week 1 code or on emergency tax which means that you will often be over taxed and usually will be due a tax refund at the end of the the tax year.
The Author writes many articles on reclaiming Income Tax in the UK and on investing in Stocks and shares for further information one of his web sites is at Easy Share Trading
