It is becoming more and more common for people to be “self-employed” in today’s world. In fact, self-employment has been deemed the new route for graduates to down once they have finished their university education. Perhaps you are wanting to be self-employed yourself, or you simply do not understand what it means to be self-employed.
For reference, here are the most popular occupations (in no particular order) which can fall under the self-employed umbrella term:
- Child Care Workers
- Maids and Housekeeping Cleaners
- Construction Labourers
- Grounds keeping Workers
- Hair and Make-up artists
- Real Estate Sales Agents
- Painters, Joiners, Brick Layers, Maintenance etc.
- Accountants and Auditors
- Writers and Journalists
In this guide we, here at Guarantor Loans, will go through what it means to be self-employed.
What does self-employed mean?
If someone is self-employed they are the owner of a business, an individual who earns their living by working for himself or herself and is, most importantly, not an employee of someone else. You are self-employed if you have one of the following types of businesses:
- Limited Company (LLC)
- Sole Proprietorship
If you are self-employed, you must still pay taxes. However, while an employee will get their taxes deduced straight from their pay cheque, you will have to do a self-assessment with HMRC at the beginning of each tax year. You will have to pay income tax as well as National Insurance. At present, this includes Class 2 NICs, which is a flat rate charge placed on the status of self-employment, and a Class 4 NICs, which refers to the contributions which are based on the profits you have made.
These contributions pay for the benefits such as:
- Basic State Pension
- Maternity Leave Allowance
- Bereavement Benefit
You must keep your contributions up to date or the payments are made late, it can ultimately make it much harder to claim these benefits when they are needed.
It is important to keep on top you’re your income and work-related spending so you know how much you will owe in tax and National Insurance.
Make sure you register as self-employed with HMRC when you become self-employed. The very latest you will be able to register with HMRC is the 5th October, after the end of the tax year for which you need to file a tax return.
Factors which indicate that you are self-employed.
You are likely to be self-employed rather than an employee or anything else if you meet a certain set of criteria.
You agree to do work, but you can equally send someone else to do the job on your behalf. This mainly applies to manual labourers, such as a builder, who can send a different person who has similar skills to work in their place.
You are likely to be self-employed if you have several customers/clients at the time. For these customers/clients, you can usually do the work where and when you like. An example of this is a writer who signs an agreement to write a book, they may write it is whenever they want to as long as they meet the deadline set out in the agreement/contract.
You may run a business and take responsibility for both the successes or failures that the business may face. For instance, a joiner will have to redo any unsatisfactory work but cannot charge the customer for the time he or she spent redoing the work.
It is you who will provide the main items of equipment, such as a computer, or specialist tools which are needed to carry out the work of your trade. These could be vehicles, scaffolding or other tools like a drill.
What is not being self-employed?
To clear up any confusion, the things that mean you are not self-employed include:
Being an employee: If you have signed an employee contract or you are recognised as an employee of someone else, you are not self-employed. A self-employed person does not work for an employer for a wage or a salary.
Being a corporate shareholder: If you are a shareholder, you are not technically self-employed. Rather, they are one of the owners of corporation, receiving dividends based on his or her shares of the ownership agreement. Owners of a corporation who are corporate officers which work in the corporation are considered employees rather than someone who is self-employed.
Being a volunteer: You may be gaining work experience through the means of volunteering. In most cases, it is you giving up your free time with the organisation perhaps reimbursing out-of-pocket expenses such as travel. If it is away from home, they may even pay for your accommodation. Regardless of this reimbursement, if you are giving up your free time, you will not be required to pay tax or national insurance and therefore, you are not classified as self-employed.