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 have to 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.
You should be aware that the information in this section relates to employment status for tax purposes only. It is possible you may have one status for tax purposes but have a different status for other purposes, such as employment law purposes. For example, some individuals such as cycle couriers and taxi drivers working in the gig economy are usually self-employed for tax purposes but have recently been found to be ‘workers’ for employment law purposes by the Courts. Therefore these individuals have some rights under employment law such as entitlement to National Minimum Wage and some employment protection which those who are self-employed for both tax and employment law purposes do not have. But they do not have the full employment rights that employees are entitled to.
Both tax and employment law in this sphere is developing as the way we work is changing and there are currently a number of Government reviews being undertaken into the whole area. Therefore we expect the law in this field to continue to evolve over the coming months and years as different situations are considered as they arise by either Government, the Courts or both. This section will continue to be updated for any major changes as necessary.
There is no straightforward legal definition of what it means to be employed or self-employed. Over the years the law courts have looked at this question many times, and they have identified some situations in which you are definitely employed and others when you are definitely self-employed. But there are other situations where the position is not clear.
Whether you are employed or self-employed is not a matter of choice; it depends on the circumstances. The distinction between employment and self-employment is not always clear; some businesses try to exploit this, for example by treating you as self-employed when you should be treated as an employee. This means the business avoids operating Pay As You Earn (PAYE) and so does not make any payments of tax and National Insurance in respect of your wages to HM Revenue & Customs (HMRC). HMRC could demand the payments that should have been made by the business from you in this situation, although they should approach the business first.
So be wary if:
- you are offered work and given a choice of being an employee or self-employed;
- someone you are going to work for tells you that you are self-employed.
Instead, make sure you understand your employment or self-employment status for yourself before you start work. If you think that something is wrong, you might want to challenge the business that is offering you the work or contact HMRC.
To decide your position, you must first consider the basis on which you work. Are you:
- ‘working’ at all? It is important to distinguish working from something that you do as a hobby perhaps or as a favour for a friend.
- carrying out an activity which is classed as training and receiving no payment at all, or perhaps only being paid expenses?
- volunteering for a charity or other organisation to help others or to gain personal experience?
- doing paid work and, if so, are you employed or self-employed? You should note that occasionally you can be doing paid work, but be neither employed nor self-employed, in which case your income may be taxed as ‘miscellaneous’ or 'casual' income.
We look at each of these types of activity in this section.
You are likely to be an employee if:
- You have an employment contract and work for a business which is not your own and in which you are not a partner.
- You work a determined number of hours, probably for one business at a time and you receive a regular pay packet each week or month from which tax and NIC have been deducted.
- The person or company you work for gives you time off for things like sickness and holidays, which is usually paid subject to the terms of the employment or according to statutory rules.
You can be employed even if you only work part time or have flexible hours or if you are only on a short contract. But if you have a lot of short contracts which you organise and set up yourself, you are more likely to be self-employed.
If you are employed through an employment agency – employment agency staff – you are likely to work in successive short term placements for end clients, arranged by the agency. You are usually treated as an employee of the agency for the purposes of having tax and NIC deducted from your wages, even though you are probably not really an employee of either the agency or the end client.
See our factsheet on 'agency workers' for more information.
See also the table below.
You are likely to be self-employed if you meet the following tests:
- You agree to do the work, but you can send someone else to do the job for you, for instance, a builder who can send another person with similar skills in their place.
- You probably have several customers at the same time. You can do the work how, where and when you like, for example, a writer who agrees to write a book and can write whenever they want to, as long as they meet the deadline set by the contract.
- You run a business and take responsibility for its success or failure, such as a joiner who has to redo unsatisfactory work, and cannot charge the customer for the time spent redoing the work.
- You provide the main items of equipment or specialist tools you need to do your work, such as a pick-up truck, or scaffolding.
None of these tests are conclusive. You have to weigh a number of different factors together to get an overall picture – see the table below.
If there is no clear answer, you need to consider a lot of different factors and then look at the overall picture.
The most important details you should consider are set out in the table below. In the table, the person for whom you work is called your ‘engager’ – he might be your employer or your client.
You should consider all the questions and then look at the overall pattern which emerges. Does it suggest employment or self-employment? You may also find it helpful to look at the important tax case section to see how the courts might apply the tests in the table in real life.
Note that the law here is complex – we have tried to simplify things, but this is not a comprehensive guide. If you are still not clear, you should ask tax adviser or HMRC for help. You can find a tax adviser on the Chartered Institute of Taxation website. You can find contact details for HMRC on the GOV.UK website.
HMRC can also help you determine whether you are self-employed, as they offer an online tool called the Employment Status Indicator (ESI). It will ask you a set of questions about your situation and at the end it will give you an indication of your employment status for tax. You can find the ESI on the GOV.UK website.
Unfortunately, the Employment Status Indicator uses language and terms which can be difficult to follow as it covers a wide scope of employment status issues.
You can rely on the ESI tool answer as evidence of your status for tax and National Insurance contributions providing you answered the questions accurately based on the terms and conditions under which you are providing services and the tool has been completed by you or your authorised representative.
We recommend that you print or save a copy of the ‘enquiry details screen’ and the ‘ESI result screen’ so that if there are any questions from HMRC at a later date you can show these as evidence that you ran a tax employment status check.
A limited company is a separate legal entity. There is more information on what your position is if you set the company up a limited company in the employment section.
There is information on what your position is if you are working through an umbrella company in the employment section.
You can be employed and self-employed at the same time. This would usually be the case if you were doing two jobs, for example, if you work for yourself as a hairdresser during the day but in the evenings you work as a receptionist in a hotel, you will be both self-employed and employed.
Yes, you can be neither employed nor self-employed but still active.
Examples might be if you are a volunteer, if you are training, or if you undertake an activity on a one-off basis.
You may be gaining work experience by volunteering. A typical arrangement in such cases is that you give your time for free, but the organisation might reimburse out-of-pocket expenses such as travel costs, or perhaps provide accommodation or meals while you are on site.
If you give your time for free, you should not need to worry about tax and NIC.
If the organisation pays you an allowance towards expenses rather than reimbursing your actual costs, problems can sometimes arise. We suggest that you look at our 2009 report, ‘Bureaucracy, expenses and the low-income volunteer’.
If you volunteer while claiming state benefits, you also need to check that there is no effect on your claim. You can find out more about this on the GOV.UK website.
The GOV.UK website has more information on volunteering.
The key question to ask is: are you carrying out tasks for someone or are you merely seeing how a job is done – except perhaps for some minor actions you undertake along the way?
This will help you decide whether you are under:
- a ‘contract of training’ – basically meaning there should be no tax or NIC due on sponsorship or payment for expenses;
- a ‘contract of service’ – that is, you are an employee and should be paying tax and NIC;
- a 'contract of training' and a 'contract of service' – meaning you are an apprentice who works and trains at the same time. This situation can occur in a broad range of jobs, from apprentice electricians to trainee solicitors and accountants. You will probably still pay tax and NIC unless you fall under the employer sponsored courses exception.
There is more information on our Tax Guide for Students website.
There is no set definition of what is meant by a contract of training although in a case brought before the courts it was decided that trainees are as follows:
- trainees give minor assistance in the work;
- trainees are not learning a trade, so they are not an ‘apprentice’;
- trainees are not doing work for an employer under a ‘contract of service’;
- trainees are trained both generally and to see how the job is done.
In one court case, the Home Office sponsored a woman for a social work university course with a view to her training and qualifying as a probation officer. The woman performed no duties as an employee and the object of the contract was to further her education and training. This meant she was under a contract of training – the sponsorship paid by the Home Office was not taxable.
The Contracts of Training and Apprenticeship flowchart on the GOV.UK website might help you decide if your contract is one for training or service.
If you are enrolled in a government training scheme, it should normally be clear whether you have employee or trainee status:
- If you are an employee you will generally have a direct contract with the person to whom you provide your services;
- Trainees will generally have a contract with the scheme organiser, which may involve work experience or training with a work provider. It will usually be clear from your contract and the surrounding circumstances that the primary purpose is to train you, although you might incidentally do some productive work for your work provider.
You might be neither employed nor self-employed if you just receive casual amounts for doing something every now and then. For example, if on a one-off basis you made a wedding dress for a friend and she paid you for doing it, any profit on making the dress would be casual earnings. If the total casual income is less than £1,000, this may be exempt from tax following the introduction of the trading allowance in April 2017, and so you may not need to complete a tax return. There is guidance as to when a tax return may be needed in our section on the trading allowance.
If it is not wholly exempt you will need to show the taxable amount as 'any other income' on your tax return. You may be able to benefit from partial relief under the trading allowance rules when working out the taxable amount. For more information on this see our trading allowance section.
For more information about who is an employee and who is self-employed for tax and NIC purposes:
- read general guidance in the section called 'Employment Status' on the GOV.UK website;
- read more detailed and extensive material about employment status on the GOV.UK website.
This table is a generalised summary of 'indicators' used to judge whether you are employed or self-employed. It is unlikely that you will meet all the indicators for either employment or self-employment.
|Method of payment||Paid a regular wage by the day, week or month||Invoice the client for work done|
|Who has control over how work is done?||The way you do your work is supervised||You are trusted to do the work yourself – as long as the final product is up to standard|
|Where do you do the work?||At the place required by your engager||At a place you decide, although some jobs might have to be carried out 'on site'|
|When do you do the work?||You are required to turn up at a certain time and work the agreed hours||You have freedom to decide when you do the work, in consultation with you engager|
|Benefits||You are given rewards other than in cash for your work, such as vouchers, free or cheap meals, a company car or shares||You tend only to be paid in monetary form – cash, cheque or bank transfer – rather than 'in kind' although some businesses might engage in 'barter' transactions|
|The work you do||Your engager can move you from job to job as needed – for instance, you may have to cover for someone who is sick||You only do the particular job which you agreed to do, unless you subsequently agree a change in terms of providing your services|
|The number of jobs||You have one job at a time, or a small number of regular jobs, such as one in the morning and one in the evening||You work for a lot of people and you juggle their requests like a builder or a taxi driver|
|Your role||You have a recognised role at the place where you work – for instance, people may report to you, or you may be listed in the phone book||You are an independent provider of services and not a permanent part of the engager's business|
|Your business?||You do not run a business from home or other location, although you may work from home if this is approved or demanded by your employer. When you need another position, you apply for jobs for example by contacting the Jobcentre or an employment agency, or answering advertisements online or in the newspaper||You have a business which you run from home – for instance, you advertise your services, you take appointments, you have your own business cards, you are VAT registered|
|Who does the work?||You do the work yourself||You may send someone else to do the work for you , or arrange for a job to be done and supervise others who you engage to help you. For example, if you are a gardening business, you might take on a job landscaping a 2 acre garden. You would be unlikely to do it all yourself, but you would quote a price for the job and in turn pay other people to help you.|
An important legal case (Autoclenz Ltd v Belcher ) confirmed certain workers who had been classified as self-employed were in fact employees with a contract of employment.
The company involved was a large one offering car valeting and related services. The individuals concerned in the case all had written contracts, the terms of which were quite explicit in saying that they were being engaged as self-employed contractors rather than as employees. The worker was termed a ‘Sub-contractor’. Under the terms of that agreement, the worker confirmed that he was ‘a self-employed independent contractor’.
So given the clear written terms of the contract, how did it all go so wrong for the company?
It went wrong, because the employment tribunal was entitled to ignore the terms of the written documentation and to look, instead, at the reality behind the workers’ contracts. This was because, in the view of the courts, the workers had only one choice: to sign up on the terms dictated by the company or seek work elsewhere.
Once this principle – looking at the reality behind the contracts – was applied, all sorts of findings of fact by the employment tribunal justified its conclusion that these individuals were working under a contract of employment.
The following factors had been influential in that conclusion:
- the individuals in question could not be described as being in business on their own account;
- they had no control over the way they did their own work, being subject to the direction and control of other employees, and being obliged to clean the cars in accordance with a detailed specification;
- they could control the hours they worked only in the sense that they could leave when their share was done;
- they had no real economic interest in the way the work was organised, though they could earn more by doing more work;
- they had no say in the contractual terms, which were devised by the company;
- their invoices were prepared by the company, which also decided the amount of deductions to be made for insurance and materials, without any evidence of the correlation between those deductions and the actual costs;
- the company determined the rates of pay, increasing or reducing those rates unilaterally;
- the individual workers were fully integrated into the company’s business and, with only a few exceptions, did no other similar work;
- despite a substitution clause in the written agreement, the individuals were in fact required to do the work themselves; and despite another clause that implied that there was no obligation on the workers to turn up, or on the company to provide work, this was wholly inconsistent with what happened in practice.
It was also noted that the company provided, at the time under consideration, all the equipment and materials, including jet washers, vacuum cleaners, sponges and chemicals.
In summary, the Supreme Court agreed with the earlier Court of Appeal ruling, which in turn concluded that the employment tribunal was entitled to find that the individuals were working under contracts of employment.
The above case gives a good summary of what the courts will look at when deciding issues of employment status. It is particularly important to note that the parties cannot necessarily rely on the paperwork or contract in place, if the reality of the situation is different.