Everything you need to know about self-employment, including: Are you self employed?


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Who is considered as being Self-Employed?

In the simplest terms, you are self-employed if you run a business by and for yourself and are responsible for the success (or failure) of the business. This is sometimes referred to as being a sole trader. You are also considered self-employed if are a partner in a business partnership.

If most of these statements are true for you, you can consider yourself self-employed:

  • You give quotes or bid for work
  • You invoice your customers for the work you have done
  • You do not have direct supervision at work
  • You do not get holiday pay or sick pay
  • You are not paid through the Pay As You Earn (PAYE) scheme
  • You have a contract which refers to you as “self-employed”, an “independent contractor” or a “consultant”

Note that you can be a contractor but not be self-employed. For example, you may be referred to as a contractor, but you can actually be employed by an agency.

The situation is completely different if you have a limited company. You are not classed as self-employed, instead, you are an employee of your company.

If you are in any doubt about whether you are self-employed or not, you can call the HMRC helpline on 0300 123 2326. Lines are open Monday to Friday between 8.30am and 4.30pm.

You can also seek clarification on your employment status from us.

Key things to know about being Self-Employed.

When you set up your own business and become self-employed, you will need to fill out a self-assessment tax return even if your profits do not exceed the annual personal tax allowance. If your business is not making a profit, you are still required to complete the tax return.

If you are self-employed, you do not have the employment rights which standard employees enjoy. You will not be entitled to paid holiday or sick leave as a self-employed worker. If your household is reliant on your income, you should make sure you have savings or access to some other finance to see you through any periods when you may experience a shortage of work. This is particularly important in the early days of being self-employed.

If you are planning to run your business from home, check the details of your mortgage or tenancy agreement to make sure you will not be contravening any terms and conditions. Similarly, you should check with your home insurance provider, as some policies may not be valid if you start a business based at home unless you upgrade your cover.

Should you choose to set up a limited company instead of becoming self-employed, there are additional requirements which we will help you with.


When to register for Self-Employment?

Once you set up your small business and become self-employed, you need to register with HM Revenue and Customs (HMRC). You must do this at the latest by the 5th of October in the second tax year of your business being in operation. The tax year always runs from 6th April in one year to 5th April of the following year. When you hire an accountant, he or she will check whether you have already completed the registration if you are newly self-employed.


How to register for Self-Employment tax?

You can register your self-employed status via the government’s website at:


or with HMRC direct at click here

We can arrange the registration for you if you prefer.

If the annual turnover for your business is over £85,000 per year, you are required to register for VAT with HMRC. If the turnover is below that threshold, you do not need to be VAT registered, although you can do so voluntarily if you wish. However, if you anticipate exceeding the VAT threshold during the financial year, you must register for VAT. It is important to register promptly. If you don’t register with HMRC within 30 days, you may get a fine. Once you are registered for VAT, you have to charge VAT to your customers, and you can reclaim VAT on your purchases for the business. You are responsible for:

• maintaining VAT records

• keeping a VAT account

• submitting VAT returns

• making prompt payments of VAT due to HMRC

You can register for VAT here

You also have the option to sign up for the flat rate VAT scheme. Under this scheme, you pay a flat rate of tax on the business income.


How much tax do Self-Employed individuals pay?

Tax is managed differently for self-employed people. Self-employed workers do not use the PAYE system. When you are self-employed, you are responsible for managing your tax arrangements yourself. Every year you need to calculate how much tax is payable for your business and complete a Self-Assessment Tax Return.

Tax is payable on all profits generated by the business. On your tax return, you need to declare all the income you have earned through being self-employed and any associated expenses. You will then be advised how much tax you owe to HMRC. The tax is then payable by 31st January of the following tax year.

As a self-employed person, you will need to pay Class 2 National Insurance Contributions (NIC), unless your profits are below the threshold. Class 4 NICs are also payable when you are self-employed.

The fees you pay for accountants will almost certainly be covered by the money they can save you through tax efficiencies and by making sure you avoid any late filing penalties.


What qualifies as Self-Employment income?

Your total income when you are self-employed is the sum of all the money which you are paid by your customers. This is the business income or turnover rather than personal income. This is reduced by the costs you incur in being self-employed, including equipment, materials and overheads. When you are self-employed, you do not pay yourself a salary. Instead, you take money which is referred to as “drawings” from the business.


Do Self-Employed individuals pay more taxes?

When you are self-employed, tax is payable on your profits. All business expenses are deducted from your total income, and tax is due on the balance. You can deduct many everyday expenses from your income, which reduces your tax liability. This may include travel expenses and a portion of your utility bills.

Self-employed people have the same personal tax allowance as employed workers. However, if your earnings exceed £100,000, your personal tax allowance is reduced by £1 for every £2 you earn over £100,000.

It is difficult to assess whether you will pay more tax as a self-employed worker, as it is not a like for like comparison. The advantage you do have is that the pay and therefore tax due for many employees is the same regardless of how much effort they put in. By contrast, when you are self-employed, your extra efforts are usually rewarded directly with additional profit for your business.


What are the benefits of being Self-Employed?


Many people enjoy a sense of freedom when they are self-employed. Even if the business demands that you work more hours per week than you might have as an employee, they are happy to make that sacrifice in order to be in control and be their own boss.


Being self-employed often gives you greater flexibility about when and where you work. You may be able to arrange your working hours to fit in with personal commitments you have, such as caring for children. Or you may choose to work longer hours for most of the year and take an extended holiday at a time of year when business is slow.


As a self-employed person, you can expect to have a greater variety of responsibilities than employees generally have. You will need to get involved in every aspect of running your business, from marketing to invoicing, and many people find this more fulfilling than a regular job. If there are aspects of the business which you don’t enjoy, you can contract them out to other people. For example, if you don’t enjoy dealing with the financial side of running a business, you can employ the services of an accountant.

Cut the commute:

Many self-employed people use a home office as their base. Alternatively, you can choose premises close to home, so you can avoid a lengthy commute.

Work with people you like:

When you are self-employed, you decide which customers to work with, and if you have employees, you get to choose them too.


All the profits of the business, after tax, are yours, giving you a great incentive to work hard.

You can set up a small business and become self-employed even when you are still employed so you can try it out before taking the leap of leaving a job. However, if you choose to be both employed and self-employed you should seek professional advice to ensure that your tax is managed correctly and efficiently.


Do I need an accountant if I am Self-Employed?

You are not required to hire an accountant when you are self-employed, but the majority of small business owners do. Unless you have a good working knowledge of bookkeeping and tax, it is recommended that you employ someone with the necessary expertise to prepare your accounts correctly. Errors in your accounts can be both costly and time-consuming to resolve.

Your accountant will give you guidance on the records you need to keep for your tax return and how long you need to archive documents for. It is important that you adhere to the guidelines on document retention in accordance with legal requirements.

Another advantage of using an accountancy firm when you are self-employed is that they will take on responsibility for managing much of your business’s finances, leaving you to focus on the core activities of running your business. An accountant can also advise you on how to make your business as tax-efficient as possible and may recommend software for you to use to record your income and expenses and for raising invoices.


Key tips for Self-Employed individuals.

Although you are not required to have a business bank account as a sole trader, it is advisable to do so. It is essential to keep your business finances separate from your personal money to avoid errors in reporting.

You need to explore whether you are required to have business insurance. The type of insurance and level of insurance cover you require may depend on the industry sector in which you operate. Many small businesses choose to take out public liability insurance. This is particularly important if you have customers at your premises or if you carry out work on a customer’s site.

If your small business has any employees other than yourself, you will need to take out employer’s liability insurance. For businesses which provide a professional service to clients, it is worth considering getting insurance for professional indemnity. This type of insurance provides cover to protect you if a client sues you. An Accountant in London or anywhere across the UK will usually be able to advise you on the types of insurance you need.

You should give serious consideration to hiring an accountant. Find out how much the fees would be for the services you require. Whether you are looking for accountants in London or another part of the country, you will find a firm which can offer you first-class service and excellent value for money.

There are many advantages to being self-employed, and studies have shown that despite the pressures and uncertainties of managing their own business, self-employed people are happier at work than their employee counterparts. A survey conducted by Markel in 2017 found that 90% of self-employed people were happier in their new careers than when they were employees. So, if you have a great idea for a new business venture, it may be time to take the plunge.


Getting a mortgage as a self-employed individual

The number of self-employed people in the UK has soared by a quarter over the last ten years, with figures showing that there are now more than 4.8 million people who work for themselves. If you’re a self-employed individual and want to buy your own home, you might be worried that it could be more difficult to get accepted for a mortgage. Fortunately, there are a number of things you can do to make the process a little more straightforward and maximize your chances of getting approved for your chosen property loan.

What you will need to apply for a mortgage.

As a self-employed person, a mortgage lender may ask you to present a number of different documents during the mortgage application process:

  • Sole traders must have a minimum of one year’s finalized accounts
  • Contractors should present fully signed contracts for the last 12 months
  • Limited company directors should present at least one- or two years’ worth of signed accounts. Note: the most recent accounts should not be more than 18 months old
  • CIS or Umbrella companies should present payslips for the last 6 months
  • Employers must present three to six months’ worth of pay slips and P60s

Maximizing your chances of being approved

The most common problem faced by self-employed people is only having one year’s worth of accounts. Although some lenders accept such applications, two or three years can greatly increase your chances of being approved and open up your options to a much wider number of lenders. In addition, it is important to have a healthy credit score and ensure that all accounts are fully up to date. It may also be worth speaking to a mortgage broker who can match you with suitable lenders before making an application.

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