Am I employed, self-employed, both, or neither?
Whether you are employed, self-employed, both or neither will make a difference to the amount of tax and National Insurance contributions (NIC) you pay, as well as how you pay. You need to know which of these apply to you, so that you can comply with your tax obligations and claim tax reliefs available to you.
There is no straightforward legal definition of what it means to be employed or self-employed – your employment status. There is information on the issues to consider if you are unsure whether you are employed or self-employed in the ‘self-employment section’ of this website. We also give more information on the following topics in that same section:
- when you are likely to be employed;
- when you are likely to be self-employed;
- what to do if you are still unsure of your employment status;
- whether you can be employed and self-employed at the same time;
- whether you can be neither employed nor self-employed;
- where you can find more information.
I have set up my own company, what is my position?
You may have set up a company to run a business through, for example, selling goods such as food, clothing, cars etc. to customers. A company is a separate legal entity, but if you set the company up, you are likely to be a director and/or an employee of that company. The tax and NIC you pay will depend on how you take your money out of the company. This might be in the form of dividends or salary for example. The position is complex and you should take advice from a tax adviser.
If your company is not supplying goods, but services – your own services, for instance you are a hairdresser, IT contractor, care worker, teacher or labourer – there are special and complex rules which deal with the tax and NIC position. These rules are sometimes called 'IR35'. Again, we suggest you ask a tax adviser or speak to HMRC if you are still unclear. You can find a tax adviser on the Chartered Institute of Taxation website or speak to HMRC by using the contact details on the GOV.UK website.
I am working through an umbrella company, what is my position?
If you are working through an umbrella company, you are normally treated as an employee of the umbrella company.
An umbrella company is an employment business that acts as an ongoing employer to agency contractors. The umbrella company invoices the recruitment agency, and then pays the contractor under the PAYE system. Umbrella companies may pay their employees a basic wage and an amount of reimbursed home to work travel expenses. You need to be careful because the rules relating to such travel expenses changed from 6 April 2016. Any travel expenses from 6 April 2016 that relate to travel between home and work should normally be subjected to income tax and National Insurance contributions. Before that date it was possible that the reimbursed travel expenses were not subject to tax or NIC, meaning both the umbrella company and the employee could have saved money, provided that the tax rules at that time were properly applied. We prepared a report on 'Travel expenses for the low-paid – time for a rethink?' in 2014.
It is the umbrella company's responsibility to calculate the correct tax and NIC. If the company gets it wrong, however, and HMRC believe you knew you were not paying enough tax or NIC, then they could ask you for the extra money. If you are worried about this, you should ask the company what the tax and NIC position is, and you may also want to talk to HMRC.
If you are working through an umbrella company you should still be paid at least the National Minimum Wage (or if you are aged 25 or over, the National Living Wage) for the hours you work. If you do not think you are being paid the National Minimum Wage, or if appropriate, National Living Wage, you can contact the ACAS Pay and Work Rights Helpline, either by telephone or online.
You should note that reimbursed home to work travel expenses do not count towards the minimum wage.
Please also read our factsheet for agency workers.