Being self-employed and only working for one company isn’t an unusual scenario these days – think about Uber drivers, Deliveroo riders and Amazon Flex workers. But there are tax implications. In this guide, you’ll find out whether you can work for one company on a self-employed basis and the tax side of things.
Table of contents
- 1. Can You Work for a Company on a Self-Employed Basis?
- 2. Can You Be Self-Employed and Only Work for One Company?
- 3. Are You Really Self-Employed?
- 4. How to Check Your Employment Status
- 5. Can a Company Make You Go Self-Employed?
- 6. How Tax Works When You Are Employed
- 7. How Tax Works When You’re Self-Employed
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. Can You Work for a Company on a Self-Employed Basis?
It’s a fairly normal business arrangement to find people who work for a company on a self-employed basis. However, there are certain rules that HMRC have put in place to protect employees and ensure everyone is paying the right amount of tax.
Some employers use self-employment to avoid tax and statutory obligations. When a company takes on an employee on payroll, they are legally obliged to:
- Run payroll and provide a payslip;
- Pay employers National I
nsuranceat 13.8% of gross salary;
- Provide holiday pay;
- Give statutory benefits such as maternity leave and sick pay;
- Protect employees against any discrimination relating to gender, sexual orientation religion and disability;
- Make sure their health and safety are protected;
- Contribute to a workplace pension scheme.
By taking on someone who is self-employed, a registered company can avoid almost all of these responsibilities. For people who are genuinely self-employed, then this is absolutely fine. But HMRC is becoming increasingly concerned that companies are using independent workers for their own benefit resulting in them exploiting the limited self-employment rights and avoiding paying national insurance.
2. Can You Be Self-Employed and Only Work for One Company?
Yes, in some cases individuals can legitimately be self-employed and only work for one company. For example, if they have just started working for themselves and are searching for new clients in which case as they find more work they’ll be self-employed and working for various organisations.
Whilst there is no time limit that a sole trader can work for one company, if you have been working for an organisation for some time, have no plans to look for more work or have a contract that prevents you from working elsewhere, then you may not be legitimately self-employed.
3. Are You Really Self-Employed?
The first thing you should consider is whether you are actually employed. HMRC doesn’t just take having a UTR number at face value. They also look at the true nature of your engagement and beyond any paperwork like invoicing, using the rules of IR35. They ask certain questions to determine whether you are self-employed or employed, known as badges of trade including checking whether you’re:
- in business for yourself, responsible for the success or failure of your business and can make a loss or a profit;
- able to decide what work you do and when, where or how to do it;
- able to hire someone else to do the work;
- responsible for fixing any unsatisfactory work in your own time;
- your client agrees to a fixed price for work – it doesn’t depend on how long the job takes to finish;
- using your own money to buy business assets, cover running costs, and provide tools or equipment for your work;
- not restricted to working for just that organisation.
If your arrangement doesn’t satisfy these rules, then you may need to be employed by the company you’re working for and receive an employment contract and payslip.
4. How to Check Your Employment Status
HMRC have an online tool that helps you to check your employment status if you are self-employed and working for a company. Alternatively, you can call HMRC on 0300 123 2326 to discuss your situation.
5. Can a Company Make You Go Self-Employed?
Legally, a company cannot make you work for them on a self-employed basis. But in reality, you can feel pressurised into accepting an arrangement where you need to register as self-employed because you want the work. This is totally understandable, especially if you have bills to pay.
Always be cautious before you accept any arrangement that you’re not totally comfortable with. You could find yourself having to report your income to HMRC, pay tax retrospectively and fill in a tax return. You may even find yourself at risk of penalties from HMRC if they discover you should have been employed but have been paid as self-employed.
6. How Tax Works When You Are Employed
When you are employed by an organisation, you’ll receive a payslip with deductions for income tax and national insurance made on your behalf before you get paid. All your tax responsibilities are taken care of for you.
7. How Tax Works When You’re Self-Employed
When you are self-employed in almost all cases, except CIS workers, money that is paid to you has no tax deducted from it. It’s your responsibility to tell HMRC about it, work out how much tax you owe and pay it over. The way you do this is by registering for self-assessment to fill in a tax return.
A tax return is a form issued by HMRC (also known as an SA100). It contains lots of different sections and boxes that you need to fill in to declare your earnings. Once completed, HMRC will then calculate how much tax you owe ready for you to pay them.
When you’re self-employed you’ll pay income tax, Class 2 and Class 4 national insurance on the self-employment profits. Profit means all your income minus expenses you can claim as a tax deduction.
Income tax starts at 20% on all your income over £12,570 and 40% over £50,270. Class 2 National Insurance is paid as a set weekly amount when your profits go over £6,725 and Class 4 is worked out as 9% on your profits over £9,880.
You can read more about self-employed tax in this guide, see some examples of how it’s calculated and when you pay it, including if you’re employed and self-employed.