Self-Employment

What Is Self-Employment?

Self-employment is the act of generating one’s income directly from customers, clients or other organisations as opposed to being an employee of a business or a person

Am I Classed As Self-Employed?

If you are considering being registered as self-employed it is worth remembering that not everyone can be registered as so. The Employment Status Indicator (ESI) is a test that has been compiled by HM Revenue and Customs to give guidance to those who are considering becoming self-employed. Therefore, before deciding to register as a self-employed person you should answer the following questions.

  • Do you issue invoices to your customers?
  • Do you provide services to more than one customer?
  • Are you responsible for loss and thereby benefit of your business?
  • Are you able to hire employees or in the case of an order, you can send another person to carry out any work required?
  • Do you have control over what, how, where and when the work is completed within the service or orders?
  • Have you invested your own funds into the development of your business?
  • Are you able to provide the basic equipment necessary to perform the services?
  • Are you forced to improve unsatisfactory services in your own spare time and at your own expense?
  • Do you give your customers a price for the service or execution of the orders issued?

If you answered yes to the majority of the questions you are able to be classed as self-employed and should therefore register as a self-employed person with HM Revenue and Customs. We can complete all registrations on your behalf if you require us to do so.

The test is used by HM Revenue and Customs in the event of disagreements relating to how individuals are classed for taxation purposes. The main objective is to ensure that the classification of self-assessment is correct as opposed to being classed as employed. The fact is that there are situations where employers want to avoid paying income tax in accordance with the rules applicable in the case of salaried employment (being an employee) and forcing their employees to register as self-employed, thereby passing the responsibility onto them.

Registering As Self-Employed

What Do I Need To Know?

How To Register

There are two ways to register:

  • Call the HM Revenue and Customs helpline on 0300 200 3310
  • Online, via a form from HMRC’s website

What Information Is Required?

  • First name and last name
  • Date of birth
  • Address
  • Start date, you can backdate the registration up to three months
  • National Insurance Number
  • What the principal activity of the business is

National Insurance Contributions

The self-employed are obliged to pay National Insurance Contributions Class 2. For the tax year 2014/2015 this amounts to £2.80 per week. It can be paid monthly by direct debit or twice a year.

In addition to Class 2, self-employed must also pay Class 4 NICs which is 9% of total profits made in the tax year. This means that self-employed persons pay not only 20% income tax but also 9% Class 4 NICs, totaling 29% tax on profits.

You must also bear in mind the personal allowance which is an amount that is effectively tax free and deducted before and tax calculation is made. This amount varies from year to year so be sure the correct amount is being deducted before calculating your tax due to HMRC.