Working for yourself
(Part 1)
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:
-
Manage and operate your own business and decide how and when to work
-
Take the risk of rewards or failures
-
Have the freedom to hire, employ, dismiss employees who work for you
-
Manage a portfolio of customers and
suppliers
-
Decide how, where and when you do your
work
-
Are responsible for the work you provide (including
making good)
-
Provide your own resources and equipment
-
Charge your own prices (however
structured)
-
Essentially try to make money through
providing/selling goods/services.
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;
-
sell regularly to try and make a profit
-
craft or otherwise make items to sell at
a profit
-
sell online, at boot fairs, or through advertising
-
earn commission from selling goods for
other people
-
receive monies for a service you provide.
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.
Contractors
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
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.
Partnerships
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
Are you looking for change?
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.
Can't find what you are after?
Well don't forget as well as self-service legal templates, we can offer a
bespoke service
! It's easy to
get in touch right here
.