Self Employed Worker

There are approximately five million self-employed people in the UK and these figures are perhaps indicative of the huge perks of this type of work. A better work/life balance, more money and the idea of being your own boss are cited as being the main reasons why people ultimately choose self-employment.

More and more businesses are starting to see the benefits of hiring freelance workers instead of part-time or full-time employees, as it enables them to take advantage of the specialist skills that those freelancers provide without the need for long-term employment contracts. 

If you are thinking about starting this exciting journey, then we’ve produced this handy guide that takes a complete look at self-employment and provides important and helpful information on tax, business structures and insurance.

Check Employment Status for Tax

If you are unsure if the work that you are undertaking is classed as self-employment, you can use the Government’s “Check employment status for tax” service. This service exists to find out if you should be classed as employed or self-employed for tax purposes. 

There must be a form of work contract in place in order to use the service and it can also be used to check if any changes to your working arrangements will alter your employment status. Your employment status is important as it determines who is responsible for working out and paying any tax and National Insurance Contributions that may be due.

Types of Self-Employment

If you start working for yourself this means that you’re self-employed and you are classed as a sole trader. When you register your business, you’ll need to decide how you want it to operate and you’ll also need to decide on a name. Many self-employed people choose to trade under their own name and as a ‘sole trader’. 

These are the different ways that a business can operate through self-employment, the business structure that you choose will have an impact on how you pay tax and who is responsible for any financial losses within the company.

  • A Sole Trader – As a Sole Trader you work on your own, generate your own income and are personally liable for any losses that the business may make. You also get to keep all of the business’s profits after tax has been paid. 
  • A Partnership – A Partnership is when at least two people hold responsibility for a business. Each of the Partners shares may vary within the business, as may their responsibilities. With both their income and liability being proportional to their share in the business.
  • A Limited Company – A Limited Company must be registered with the United Kingdom’s registrar of companies known as Companies House. A Limited Company is seen as a separate legal entity from the people that run it. There are more tax benefits for limited companies.

Register as Self-Employed with HMRC

Once you have determined that you are self-employed and have decided on a business name and structure, you need to register with HMRC so that you can pay the correct amount of tax on your earnings. 

As a self-employed worker, you will not be paid through PAYE (Pay As You Earn) as you are when working for an employer. So you need to ensure that you personally comply with your tax obligations by registering at the earliest opportunity. Self Assessment is the system that HMRC uses to collect tax from self-employed people and businesses, who must report their income in an annual tax return.

Allowable Expenses if You’re Self-Employed

As a self-employed worker, your business will have various costs in order to keep running, such as stationary, heating and lighting bills, fuel and parking. You are able to deduct some of these costs in order to work out your taxable profit. These are called allowable expenses and do not include private purchases.

If you run a Limited Company though, the rules are somewhat different. If you or an employee of the company makes personal use of something that belongs to the business, such as a company car, then you must report it as a “Company Benefit” and pay any tax due.

Insurance for Self-Employed Workers

As a self-employed worker, you will want to avoid damaging your professional reputation so investing in an adequate insurance policy that covers you from unforeseen incidents is well worthwhile. Working under your own guidance means that if anything goes wrong, it may very well fall back on you for rectification and financial compensation. It is recommended that you take out an insurance policy with the correct amount of cover before you begin trading to reduce these types of risks. 

Ashburnham Insurance provides low-cost public liability insurance for self-employed workers including labourers, builders and a whole host of different manual and clerical freelance trades. See our trade list for more details. Employer’s Liability Insurance is also legally required if you run a company that hires any employees.

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