Employed by yourself (self employed) means different things to different people. The starting point is what HM Revenue & Customs (HMRC) thinks of your situation.
HMRC has many tests that you will need to meet to pass as someone who is truly self-employed.
You are likely to be self-employed if you:
- run your own business and are responsible for its success or failure
- have several customers at the same time
- decide how, where and when you do your work
- can hire other people at your own expense to help you or to do the work for you
- provide the main items of equipment to do your work
- are responsible for finishing (replacing) any unsatisfactory work (goods)
- charge an agreed fixed price for your work
- sell goods or services to make a profit.
Many of these checklist items also apply if you are running your businesses as a limited company. You are an employee of your own business.
How do I know if I’m classed as self-employed?
The recent trend of firms to move staff off payroll and into ‘self-employment’ has led to the rise of the ‘gig’ economy. Examples of this are businesses such as Uber’s drivers or Deliveroo’s home food cyclists.
The law has been catching up with this situation. A number of high profile cases in the news are now determining where people are or are not truly self-employed. The law and rulings have said that you are not likely to be self-employed if you:
- are required to provide a service personally – you cannot hire someone else to undertake the work for you
- you are subject to supervision, direction or control over the manner in which the work is performed. You have no real freedom of action when it comes to how you work.
- there is a mutual obligation of both parties. The firm you are contracted to is obliged to provide work and you are obliged to make yourself available to do it.
Understanding your status is crucial as it will affect how you pay tax and whether you have any employment rights. If you’re not sure, use the HMRC online employment status checking tool.
How do I register for self-employment?
No matter which route you take to self-employment, you will need to tell HMRC immediately.
The HMRC will want you to register for National Insurance, Income Tax and possibly VAT. If your turnover exceeds or is likely to exceed the VAT threshold (£85,000 during 2017/18, and 2018/19), it is obligatory to register to VAT.
If you choose to operate via a limited partnership or limited company you will also need to tell Companies House.
On top of this come responsibilities for pensions if you have staff and possibly also health and safety reporting duties. Don’t forget that if you take on premises you will need to register for business rates through your local authority.