If you’re self-employed and only ever work for one company, there might be some benefits to being treated like an employee rather than a freelancer. This includes things such as getting paid sick pay and holiday entitlement. However, it also opens up questions about how much income tax you owe and where you fall within the Income Tax Act 1988.
You could be classed as either a “worker”, “employee” or “freelance worker”. If you fit into one of those categories, you’ll need to consider paying yourself as an employee.
1. Can You Work for a Company as an Independent Contractor?
Companies are avoiding paying taxes by exploiting the self-employment tax system. HM Revenue & Customs (HMRC) is cracking down on companies that employ workers under the guise of being self-employed. If you work for one of these companies, there are ways around it. But if you want to continue working independently, talk to us about our tax planning options.
2. Can You Be Self-Employed and Only Work for One Company?
Legally speaking, there are instances when it is possible for someone to be self-employed while working for one company. In fact, some people do just that. But if you are in a position where you cannot leave your job without losing benefits, then you may not be able to legitimately call yourself self-employed. There must be language in your employment contract that allows you to work for another company, even though you are employed by your current employer. If there isn’t such language, then you may not qualify as self-employed.
A legitimate self-employment agreement should include language regarding how long you plan to continue working for them, what you plan to do for them, and any additional relevant information.
3. Are You Really Self-Employed?
HM Revenue & Customs (HMRC) has announced it will begin auditing the true nature of engagements between businesses and freelancers. This will include checking whether the work being done is really self-employment or just a way to avoid paying tax.
The announcement follows research conducted by the Tax Justice Network (TJN), which found that almost half of UK workers are classed as self-employed, despite many having no control over how much they earn.
According to TJN, there are three main methods people use to claim themselves as self-employed:
1. They set up a limited company.
2. They use a payroll service such as Xero or Sage Payroll.
3. They use a software tool like Hubstaff or Upwork.
In reality, however, most people are simply doing freelance work without registering as self-employed. In fact, TJN estimates that 80% of people working online are actually self-employed.
4. How to Determine Your Employment Standing
To find out whether or not your employer is paying National Insurance contributions (NICs), you must register for a Free Account with HM Revenue & Customs (HMRC). You can do this online or by calling 0300 123 23 26.
There are two ways to check whether or not you are entitled to NICs: through a web form, or over the phone. If you want to use the web form, go to www.hmrc.gov.uk/nic.htm. Alternatively, call HMRC on 0300 123 23 26.
5.Can an employer force you to become self-employed?
Selfemployment is often viewed as a dirty word. But it doesn’t have to be. In fact, it’s a great way to earn extra money – especially if you’re looking to avoid tax bills. However, it does come with some risks. Here’s how to make sure you don’t end up being exploited.
1. Don’t sign anything without reading it thoroughly
If you want to work for yourself, you’ll need to read everything carefully. This includes contracts and agreements. If something looks too good to be true, it probably is. Take your time to read everything fully and ask questions about anything you aren’t clear on.
2. Be wary of companies offering “free” training
There’s nothing wrong with free training. But beware of companies that offer it as part of a recruitment process. They might say they’ll provide training materials, equipment, even accommodation. But once you’ve signed the contract, you’re stuck with whatever they give you. And if they don’t deliver, you could find yourself out of pocket.
3. Know exactly what you’re signing away
If you’re working for someone else, it’s important to know exactly what you’re giving up. For example, if you’re asked to do tasks outside of your normal role, check whether those tasks are covered in your contract. Also, make sure you know what happens if you decide to leave. Will you still receive pay? What will happen to your benefits?
Frequently Asked Questions
When do I anticipate being self-employed?
You are most likely to be self- employed if you meet the following criteria:
1. You agree to do the job, but you can send somebody else to do it for you, for instance a builder who can send someone else with similar skills in his place.
2. You probably have several customers simultaneously.
3. You can do the work however, wherever and whenever you like, for example a writer who can write whenever he wants to, as long as he meets the deadline set by the agreement.
4. You run a business and are responsible for its success or failure. For example, a joiner who has been given unsatisfactory work and must redo it free of charge cannot charge the client for the extra time taken up doing the work.
5. You provide the main items needed to carry out the task, such as a pickup truck or scaffolding.
6. You are paid according to the agreed price rather than being paid per hour or day worked.
Can I be simultaneously employed and self-employed?
If you earn money working for someone else and also make money out of selling goods or providing services yourself, it could affect how much tax you owe.
The government says that you can be employed and self employed at the same time – although there may be some exceptions.
You might be able to claim Jobseeker’s Allowance while being self-employed, for instance, or receive state benefits while running a small business.
But you must check whether you fall into one of the following categories:
• A sole trader
• An independent contractor
• Someone working part-time for another person