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Self Employed

How Do I Know If I'm Self-Employed?

Marin Perez
Shot of a mature man working in a bicycle repair shop

Sometimes, there's a bit of confusion about your employment status. Knowing your worker status can have a grave impact on your taxes and overall success. Here's how to determine if you're self-employed, or also known as a sole trader.

What is my employment status?

Generally speaking, the UK recognises three types of employment status:

  • Employee
  • Worker
  • Self-employed

An employee will work to the terms of a contract of employment and will fulfil the work personally. Whether the contract exists as a formal agreement or implied, it lays out the conditions such as pay, annual leave and working hours.

A worker will also adhere to the terms of a contract of employment and perform the work personally. However, some workers have a limited right to bring in someone else to complete the job, such as a sub-contractor.

A self-employed person runs his or her own business and takes responsibility for its success. Plus, they are more likely to be contracted to provide a service for a client. They will not be paid through PAYE and don't have the same employment rights and responsibilities as employees or workers.

Why do I need to know if I'm self-employed?

Self-employed individuals have a different tax situation compared to an employee. The self -employed usually must pay their National Insurance Contributions in addition to their income tax.

But the self-employed do get some tax perks, too. They can claim many business expenses for tax relief that employees cannot.

If your employment status is wrong, you may face unpaid tax and penalties or lose benefits. Therefore, knowing if you are self-employed, a worker or an employee is an important piece of knowledge.

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What employment rights does the self-employed have?

Most employment legal protections that apply to employees do not extend to self-employed individuals. Although, the self-employed worker still has legal protection for:

  • Their health and safety
  • Their rights and responsibilities in the contract they signed with the client
  • Discrimination (in some cases)

How can I check if I'm self-employed?

The HMRC has an online tool that walks you through a few questions determining your employment status. You can also call the HMRC with your questions about employment status at 0300.123.2326.

While there's nuance to each position, in general, the self-employed:

  • Take responsibility for the success or failure of a business you run
  • Sell services or goods with the goal of making a profit
  • Have to provide the tools and equipment
  • Decide how, when and where you do your job
  • Can have several customers at one time
  • Can hire others to complete your work
  • Have to finish unsatisfactory work at your own expense, on your own time

After I know I'm self-employed, what's next?

Government registration is required if you are a sole trader. The purpose of registering is to pay your proper amounts of taxes for Self Assessment and Class 2 National Insurance. Otherwise, you may face stiff penalties down the road.

After completing registration, you should start tracking your business expenses for potential tax relief. For example, you can use a mileage-tracking app like MileIQ to help you claim tax relief for your business mileage.

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