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Are You Employed Or Self Employed For Tax Purposes?

The way that you pay tax and National Insurance depends on your employment status.  As well as determining how you pay your tax, whether you are employed or self-employed also affects your employment rights and what benefits you may be entitled to.

Our guide will help you work out whether you are employed or self-employed and how this may affect how you pay tax.

Are you employed or self-employed?

The easiest way to work out your employment status is to answer these questions:

You are probably employed if:

  • You have to do the work yourself
  • You have to work a fixed amount of hours
  • You are paid a set amount depending on the hours that you work
  • You get paid for working overtime
  • You are told when, where and how you do your work
  • You work for someone who is in charge of what you do

You are probably self-employed if:

  • You take responsibility for the success or failure of the business
  • You provide the equipment needed to do your work
  • You decide who to hire to help you with your work
  • You have a number of clients/customers simultaneously
  • You decide when, where and how you do your work

Sometimes you may be both employed and self-employed at the same time.  For example, you may work during the day and then run your own business from home in the evenings and at weekends.

Ultimately, whether you are employed or self-employed depends upon what your contract says and the facts of your working arrangements.  Sometimes the courts have to get involved to determine the basis of your employment; for example after a dispute about benefits.

Paying tax and National Insurance if you are self employed

If you are self employed, you are responsible for paying both tax and National Insurance contributions.  You have to let HM Revenue and Customs (HMRC) know that you are self employed – there are penalties if you don’t register as self employed – and you must fill in an annual Self Assessment tax return.

Paying tax and National Insurance if you are employed

If you work on an employed basis, it is your employer who is responsible for paying your tax and National Insurance contributions on your behalf.  They do this through the Pay as you Earn (PAYE) system.

If you are employed you are also entitled to a further range of benefits.  For example, you are entitled to sick pay, Jobseeker’s Allowance (if you lose your job), paternity and maternity leave and a State Pension when you retire.