Self employed or employee?

In certain circumstances it can be unclear whether an individual is self-employed, an employee or the transactions are of a capital nature. It is important to get this right as there are considerable differences in the tax treatment of each activity.

Self-employed individuals must register for Self-Assessment and are chargeable to tax and National Insurance classes II and IV.

Employed individuals will be subject to Pay-As-You-Earn deductions at source. Most employees do not need to complete a Self-Assessment Return unless they have other income/gains or are a director or fall within the HMRC criteria of who must complete a Return.

Anyone taking on “help” needs to distinguish whether the individual is self-employed (pay gross or operate CIS) or is an employee (they will have to operate PAYE).

When deciding on status HMRC look at the “badges of trade” which are:

  • Profit motive
  • Frequency and number of transactions
  • Modification of the asset
  • Nature of the asset
  • Existence of similar trade
  • Source of finance
  • Length of ownership
  • The way the sale is carried out
  • The reason for the acquisition and the sale

If you are unsure check using the Revenues “Employment Status Indicator”. Keep a printout of the results in case this is ever questioned by the Inspector.

There are stiff penalties for getting this wrong. If you need assistance with this please let me know.


Published 31 October 2017