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Determining your employment status is important for tax and National Insurance purposes. This guide will help you understand whether you’re employed, self-employed, or neither and explain the implications of each status.
Employment Status Categories:
Employed: As an employee, you work under a contract of employment, either written, verbal, or implied. You usually have set hours, receive regular pay, and have taxes and National Insurance contributions deducted at source through the PAYE (Pay As You Earn) system.
Self-Employed: If you’re self-employed, you run your own business and are responsible for its success or failure. As a result, you have more control over your work and can choose when, where, and how you work. In addition, you’re responsible for your taxes and National Insurance contributions as a self-employed individual.
Both Employed and Self-Employed: In some cases, you may have a mix of employment and self-employment income. For example, you could work as an employee during the day and run your business in the evenings. However, you must ensure that you meet the tax and National Insurance obligations for both types of income.
Neither Employed nor Self-Employed: You may fall into this category if you’re not working or generating income from self-employment. This could include being a student, a full-time carer, or unemployed.
Determining Your Employment Status:
There is no single definition of employment status. Instead, the courts and HM Revenue & Customs (HMRC) use various factors to determine whether an individual is employed or self-employed. Some key factors include:
- Control: If you’re under the control of someone else who determines how, when, and where you work, you’re more likely to be an employee.
- Integration: If your work is integral to the business, you will likely be an employee.
- Financial risk: If you’re taking financial risks and are responsible for covering your expenses, you’re more likely to be self-employed.
Implications of Your Employment Status:
Tax and National Insurance: Employees and self-employed individuals pay tax and National Insurance differently. Employees have their taxes deducted through PAYE, while self-employed individuals must register for Self Assessment and pay their taxes and National Insurance contributions directly to HMRC.
Employment Rights: Employed individuals have certain employment rights, such as the right to the national minimum wage, paid holidays, and protection against unfair dismissal. Self-employed individuals don’t have these rights but have more control over their work and the potential for higher earnings.
Benefits and Support: Depending on your employment status, you may be eligible for different benefits and support. For example, employees may be eligible for Statutory Sick Pay, while self-employed individuals might qualify for the Employment and Support Allowance.
Understanding your employment status is essential for tax and National Insurance purposes, as well as knowing your rights and obligations. If you need more clarification on your employment status, please call our tax advisors on 08001357323 for specialist advice.