Employee or Self-Employed – How to Check Your Status

August 19, 2022 10:46 am Published by Steph Roffey

young man writing in notepad Whilst many people are clear on whether they’re employed or self-employed, for some, employment status can be a little more complex to work out.

Whether you are employed or self-employed will determine the amount of tax and National Insurance Contributions (NIC) you have to pay, as well as how you go about paying them. Understanding which employment status applies to you will ensure you can comply with your tax obligations and claim any tax reliefs available to you.

This guide is designed to determine what each employment status means and highlight the distinctions between them.

The Difference Between Employed and Self-Employed

As a general rule:

An employee is hired under a “contract of service” (employment contract) and is not responsible for the running of the business.
A Self-employed individual agrees a “contract for services” with a secondary party and is responsible for running their business for themselves, with the risks and rewards that implies.

The issue is that in many cases, it is not immediately clear which status a particular engagement falls under and so it’s necessary to investigate further.

When it comes to tax obligations, if you are an employee, your employer is required by law to operate Pay As You Earn (PAYE) tax and Class 1 National Insurance Contributions on your wages, and pay it to HMRC on your behalf.

By contrast, if you are self-employed, you must pay income tax through the self-assessment tax return system and pay Class 2 and Class 4 NIC directly to HMRC.

Why is it Important to Know if I’m Employed or Self Employed?

Understanding your employment status is the first step to ensuring you are accurately fulfilling your tax obligations as well as making sure you are not being taken advantage of by an employer.

Unfortunately, some businesses try to exploit people looking for work, by treating them as self-employed when actually, they are an employee. This is known as “false self-employment” and means that the business avoids paying any tax and National Insurance in respect of the “employee’s” wages.

Be wary of opportunities where:

You are offered work but given the choice of being employed or self-employed
A business you work for tells you that you are self-employed

Should HMRC believe you were incorrectly treated as self-employed, in certain circumstances, they could demand the PAYE payments that should have been made by the business from you, although they will often approach the business first.

It is therefore crucial that you understand your own employment status and query it with any business you work for if you think it might be incorrect.

When am I Likely to be Employed?

You are likely to be classed as an employee if:

You have an employment contract and work for a business which is not your own
Your employer, manager or supervisor is in charge of your workload and determines how your work should be done
You are contracted to work a set number of hours and receive a regular wage or salary, even if there is no work available
You cannot refuse to do the work
You are expected to undertake the work yourself
You receive time off for things such as sickness and holidays

Note that you can be employed even if you only work part time or have flexible hours.

When am I Likely to be Self-Employed?

You are likely to be self-employed if the following apply:

You are responsible for how and when you work
You are the owner of a company or a freelancer
You submit invoices for your pay instead of receiving a wage or salary
You are able to send someone else to do the work should you choose to
You set your own rates
You yourself provide the main items of equipment or specialist tools you need to do your job

Despite working as a general guideline, none of the above statements are conclusive and a number of other factors must be considered to get an overall picture of your employment status.

Can I be Both Employed and Self-Employed?

You can be both employed and self-employed at the same time. Most often this is the case if you are working two jobs, for example if you worked for yourself as a builder during the day but in the evenings, you worked as waiting staff at a restaurant.

If you are both an employee and self-employed, ensure your employer has your employment status filed correctly and be sure that you also keep on top of your responsibilities for the self-employed work you’re undertaking.

I’m Still Unsure of my Employment Status

If you’re in a complex situation where you’re unsure whether you are an employee or self-employed, HMRC have a factsheet that will help you determine your employment status.

There is also an online tool called Check Employment Status for Tax (CEST) which will ask you a range of questions about your situation and provide an indication of your employment status for tax.

Need a Hand?

If you need help determining your employment status or think you’ve been incorrectly filed under the wrong status, get in touch.

Our expert team can advise you on next steps and can assist with the preparation and submission of self-assessment returns if applicable.

For a no-obligation consultation, call us on 0117 379 0810.

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Steph Roffey

Steph is a Chartered Accountant with many years’ experience working in audit compliance and general accountancy. She is a Fellow of the ICAEW and has extensive knowledge of accountancy and tax for the self employed.

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