Working for yourself
Individuals who work for themselves are classified as sole traders and therefore self-employed. If you are in any doubt, the following is a non-exhaustive list of examples.
The chances are that you are self-employed if you:
This list is not exhaustive and there may be other examples not listed here. It is possible to be both employed and self-employed e.g. a day job is employed, and an evening job is self-employed.
What about traders of goods and services?
You might be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed. This might be small time from home in the evening or your main source of income.
Try the following. Are you likely to;
It's important to note that the occasional sale of unwanted garage or loft items will not amount to trading. If you have any doubt, HMRC has the following link to assist you - Contact HMRC
Working through your own company
A number of people ‘work for themselves’ through their own company but this isn’t real self-employment. Whilst they tick a number of the above listed criteria, they are actually owners of their company and employed by that company. For HMRC purposes they are not self-employed.
Individuals who are hired by businesses to provide services without being on PAYE can do so either through their own limited company (often called an umbrella company) or directly as an individual. Accordingly, they might be self-employed, or employed by their own company. It depends who contracted with the business requiring the service. We are not discussing the implications of IR35 here but please refer to our previous blog on this issue.
Agencies act as a link between the contractor and the business requiring the work.
They typically have customer lists of businesses requiring work and can negotiate rates of pay and duration of the terms of service. It is of course acknowledged that they provide an extremely useful service.
However, they charge commission to the business that needs the work – often at rates of up to 20% of the total paid to the contractor.
Not only that, once introduced, agencies can (for a period of time) dictate the relationship between the contractor and the business and prevent them working together in the future unless further monies are paid to the agency. If a business and a contractor enjoy a healthy working relationship and wish to extend a term, the agency will often charge further monies even though the introduction may have been many months beforehand.
I know several contractors who have returned to businesses requiring their services. However, the agency’s expectation of further commission has reduced the rates of pay which the contractor might have enjoyed even though the agency had effectively fallen away from the relationship.
Accordingly, some contractors actively await the expiry of the restriction period (which might be up to 12 months distance between contractor and business) before returning agency free.
These can be large or small. Individuals who are real (equity) partners are self-employed. Please be aware though that it is possible for partnerships to employ people and some senior management within larger partnerships may have ‘salaried partners’. Such individuals will be employed on a PAYE status.
Registering as self-employed
If you’re self-employed, you may need to set up as a sole trader.
John Davies - 17th April 2020
If your looking to take that entrepreneurial leap, or perhaps a contractor or self employed and working via an agency or work arranger, please stay tuned to our blogs. We will be publishing a series of articles on the how you can fully work for yourself and what's needed.
In the meantime, you can check-out our "Business as Usual" template collection. It's packed with templates useful to the self employed and small business.
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