Employed or self-employed?


Tax and National Insurance contributions

Employee

It will normally be your employer’s responsibility to deduct tax and National Insurance contributions from your pay under PAYE and pay it to the HMRC.

Self-employed

You are responsible for your own tax and National Insurance contributions. This means

  • telling your HMRC office if you haven’t already done so, that you are in business
  • telling your HMRC office about all your income. Once you have told us that you are in business, we will normally send you a Self Assessment tax return each year to enable you to do this. However, you must still tell us about income you have in any tax year, even if we do not send you a tax return for that year
  • paying the tax
  • paying Class 2 National Insurance contributions. We will send you a bill every 13 weeks in arrears, unless you choose to pay monthly by direct debit
  • paying Class 4 National Insurance contributions.

Being self-employed also affects

  • the benefits you can claim, such as unemployment benefit
  • other rights, for example the right to maternity leave, or to a redundancy payment, notice rights and so on
  • liability to the public for the work you do for them.

When should I register?

You should tell the HMRC as soon as you start working for yourself.

If you do not register within the first three months of self-employment, you may have to pay a penalty of £100.00. And if you do not register and are not paying tax, you will be breaking the law and could be liable to further penalties.

The easiest way to register is to phone the Helpline for Newly Self-Employed on 0845 915 4515.

If you would like to know more about how tax and National Insurance affects the self-employed, please visit the HMRC website at www.hmrc.gov.uk

Still not sure?

If you are not sure whether you are an employee or self-employed, or if you have any other questions, please contact your local HMRC Enquiry Centre for advice.

After establishing the relevant facts, they can give you a written opinion about your particular employment status for tax and National Insurance contributions purposes. If you do not agree, they will reconsider it in the light of any additional information you can provide.

If the HMRC still cannot agree, you have the right to appeal. You can get a copy of the Department of Constitutional Affairs leaflet ‘Tax Appeals. A guide to appealing against decisions of the HMRC on tax and other matters’ from any HMRC Enquiry Centre.

If you are paying someone to work for you and are not sure if you are the employer responsible for deducting PAYE and National Insurance contributions from their pay, your local HMRC Enquiry Centre can also advise you.

This business advice article is subject to © Crown Copyright
1 2 3 4 5 6

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>