Working out whether you are employed or self-employed may be a complicated task. Some people do jobs 'on the side' as an extension of their 9-5. Others decide to work as an employee while building up their own business on evenings and weekends. In these cases, it is possible to be both employed and self-employed at the same time
How to work out your employment status
Your employment status will depend on the terms under which you work. This should be detailed in your contract, which will normally be a written agreement between you and the other party.
However, the terms may not be in writing and may be in the form of implied terms of agreement, normal practice or a combination of written and unwritten terms.
You are likely to be classed as an employee if you:
- have to do the work yourself;
- work for one person/business who controls what you do and takes on the risks of the business;
- are told what to do, when and where;
- have to work a set number of hours;
- are paid a regular amount according to the hours you work and get paid for overtime.
You can still be classed as employed if the work you do is on a casual or part-time basis.
You are likely to be classed as self-employed if you:
- run the business yourself and are liable for any of the risks of that business;
- have more than one customer at the same time;
- can decide what you do, where and when;
- are free to substitute other people to do the work for you at your own expense;
- provide your own tools or equipment.
You need to assess your employment status for each 'job' you do. You may find that you are both employed and self-employed at the same time.
If you are still not sure whether you are employed or self-employed, or whether you need to declare a second income, you can use the HMRC employment status checker or call HMRC on 0300 123 2326
Registering as self-employed with HMRC
If you find that you are self employed for some of your jobs, you must register as self-employed using the HMRC online services or by calling the HMRC 'Newly Self-Employed Helpline' on 0300 200 3504. You must also complete a self-assessment tax return and pay any tax due to HMRC.
It is your responsibility to register with HMRC and complete a self-assessment tax return. You have until 5 October to notify HMRC if you were self-employed in the previous tax year. Failure to notify HMRC may result in a penalty.
You should also bear in mind that there are other situations which may require you to complete a self-assessment tax return.
The tax due on your employed and self-employed earnings will be paid differently and are due at different times.
Tax and NICs implications for employees
As an employee, your employer will deduct tax and National Insurance contributions from your wages whenever you are paid. Your employer pays them to HM Revenue & Customs on your behalf via PAYE on a monthly basis.
You will pay income tax on earnings above your personal tax allowance (standard personal allowance is £12,570).
Class 1 NICs will also be payable on earnings over the primary threshold of £241.73 per week (2023/24).
The rate of tax and NICs payable will depend on the amount you earn and on any personal allowances.
Tax and NICs implications for the self employed
The self employed pay tax and NICs to HMRC through self assessment.
You must keep records of all your expenses, income and business assets and complete a self-assessment tax return each year. The deadline for submitting your tax return is 31 October each year for paper returns or 31 January for online returns.
You pay income tax on your profits after deducting businesses expenses from your income. This can represent considerable savings.
You may also be liable to pay Class 2 and Class 4 NICs. Class 2 NICs are payable at a flat, weekly rate of £3.45. The rate and amount of Class 4 NICs payable will depend on your profit levels.
Most self-employed people pay Class 2 and Class 4 NICs via self-assessment in two instalments at the same time as their tax - on 31 January and 31 July each year.
It is possible to defer some of your NICs if you are both employed and self-employed to avoid overpaying them. However, to do this, you must apply to HMRC before the start of the tax year you want to defer them for.