Before venturing into starting up a business or becoming self employed, we need firstly to establish whether you can legally function as a business rather than being employed. Many people believe falsely that if you set up a business you can trade as a business, however, there are two fundamental reasons for the government to not allow you to do so. Firstly, to protect you as an employee where there is a possibility to pressure you to work in a self employed capacity to either get rid of you or to reduce the employer’s responsibility towards you. Secondly due to many people setting up businesses solely for the purpose of saving tax, the government has stepped in and ruled that if you do not meet the requirements of a trading business, you are employed whether you like it or not and you will be liable for national Insurance contributions and PAYE on the money you earn. For more information on this visit: IR35.
There is also a legal responsibility on employers to check the status of their sub-contractors and suppliers to ensure that they can be self employed rather than being employed.
So how do we find out our employment status?
HMRC give this as a general guideline:
As a general guide as to whether a worker is an employee or self-employed; if the answer is ‘Yes’ to all of the following questions, then the worker is probably an employee:
- Do they have to do the work themselves?
- Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
- Can they work a set amount of hours?
- Can someone move them from task to task?
- Are they paid by the hour, week, or month?
- Can they get overtime pay or bonus payment?
If the answer is ‘Yes’ to all of the following questions, it will usually mean that the worker is self-employed:
- Can they hire someone to do the work or engage helpers at their own expense?
- Do they risk their own money?
- Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
- Do they agree to do a job for a fixed price regardless of how long the job may take?
- Can they decide what work to do, how and when to do the work and where to provide the services?
- Do they regularly work for a number of different people?
- Do they have to correct unsatisfactory work in their own time and at their own expense?
For more information on this visit the following:
HMRC Employment Status– this expands on the above list and offers exception to the rules.
Gov.uk Employment Status– offers a great list that defines different roles from employees to contractors.
If you are thinking of starting a business, please contact us for free advice