SELF-EMPLOYED: It is a person who runs a business in their own right. Thus, self employed workers take responsibility for the successes or the failures.
Self-employment status means your rights and responsibilities include:
- Paying your own National Insurance Contributions and tax.
- Not getting paid not through the PAYE system.
- Determining what to charge for your services and how much holiday time to take off work.
- Having less employment rights than someone in employee status.
Note: It is not uncommon for an individual to be self-employed and employed at the same time. Thus, you could be self-employed for tax purposes and classed as a worker (or employee) for employment rights. It might apply if you work for an employer during the day time and you are the boss of your own business in the evenings.
Self Employed Employment Rights
Being your own boss means you do not get total cover from the full list of UK employment laws. Even so, having self-employed employment status means you do get:
- Some protection on health and safety and limited protection of being discriminated against.
- Entitlement to Maternity Allowance for some self-employed women who recently left their jobs.
- Details of their rights and responsibilities set out as per the terms of contracts with their clients.
Working Out Self Employed Status
HM Revenue and Customs can treat a person as being self-employed for taxation. This applies even if the person has a different status for employment law purposes.
Thus, all employers should check whether their workers are self-employed:
- In employment law: Do they have employee rights?
- In tax law: Are they exempt from paying PAYE?
Note: There are severe penalties for having the wrong employment status. Employers, and individuals, may need to pay any unpaid tax or lose entitlement to benefits.
Checking Exemption for PAYE
As a rule, you would have self-employed status, and should not get paid through PAYE, if some or most of these apply:
- You are in business for yourself. That means you are the person responsible for the success or failure of your own business. As such, it can make a profit or it can make a loss.
- You can decide what work you do and when to do it. You get to determine where and how to perform the tasks.
- You can choose to hire someone else to carry out the work on your behalf.
- You would be responsible for fixing any unsatisfactory work and in your own time.
- Your employer agrees a fixed price for the work you do. Thus, the time it takes to finish the task does not determine the fee.
- You use your own money to buy business assets and cover the running costs. You provide your own tools and equipment for the work.
- In some cases, you may perform work for more than one client at a time.
Note: You can check if someone is self-employed or employed online or by phoning HMRC. Special rules apply to employment intermediaries who supply workers (e.g. employment agencies).
HMRC Check Employment Status
HM Revenue and Customs
Employment Status Customer Service Unit
Newcastle Upon Tyne
Checking Someone’s Employment Rights
Self-employed workers do not have the same rights as those with employee employment status. Thus, you would be self employed and exempt from PAYE if some or most of these apply:
- You give out quotes, or put in bids, to get work and then issue invoices when it gets finished.
- You are not under direct supervision while you are working.
- You are responsible for paying your own Income Tax and National Insurance contributions.
- You do not get sick pay or holiday when you are not working.
- You operate under a contract (also called a ‘contract for services’ or ‘consultancy agreement’). It uses terms such as ‘self-employed’, ‘independent contractor’, or ‘consultant’.
Contractor Employment Status
A contractor can either be self-employed, a worker, or an employee. This might apply if they work for a client and employed by an agency.
A special scheme exists for self-employed contractors and sub-contractors who work in the construction industry. The scheme is officially called the Construction Industry Scheme (CIS).
Note: If you become self-employed as a worker you must inform Her Majesty’s Revenue and Customs (HMRC).