It’s always a bit nerve-wracking paying money to someone who is a sole trader or a freelancer. After all, the internet is rife with stories of people who take cash and disappear into the night never to be seen again.
The words sole trader, self-employed and freelancer all have the same meaning.
How to Check if Someone Is Self-Employed
First things first, establish whether they have a Limited Company. Some people refer to themselves as self-employed or sole trader but they have Limited Company, mainly because it saves them tax.
Do this by simply asking them the question.
If They Are a Sole Trader
If they say they do not have a Limited Company, then unfortunately there is no way to check whether they are self-employed.
There is no register of sole traders or list like the land registry. And sole traders are not required to register on Companies House, unless they trade through a Limited Company.
In this case, make sure you feel absolutely comfortable before you pay them any money.
To give yourself peace of mind:
- Use a recommended supplier;
- Check their website;
- Look for reviews online;
- Ask to speak with a customer/client;
- Trust your gut!
If They Have a Limited Company
If the sole trader you are planning to work with tells you they have a Limited Company, ask for the full name of the Company and registration number.
Once you have this information you can go over to the Companies House website and check their business is registered.
On the Companies House website you’ll be able to get information on the Company and check for anything that you should be wary of such as:
- Overdue accounts;
- Different directors;
- Unexpected ownership.
It is worth noting that even though a person trades through a Limited Company it doesn’t necessarily mean that you are any safer. There are plenty of stories of people paying money to Limited Companies, which are then wound up and the Directors disappear with the cash. So regardless of tax status, always do your research and make sure you are comfortable with the person you are paying.
New Here? These are my most popular resources:
- The Ultimate Bookkeeping Spreadsheet – Organise your money, track the numbers that matter and stay on top of your cash;
- FREE Guide: 11 Common Small Business Setup and Tax Mistakes – Are you worried your business isn’t set up correctly? Use this guide to identify whether you’re making the 11 most common financial pitfalls I’ve seen when it comes to setting up a business and taxes, as well as finding out how you can put them right;
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- FREE Business Expenses Cheatsheet – Check what you can and can’t claim as an expense against your taxes.
- 6 Core Elements of Self-Employment Taxes – Confused by taxes? Worried you’re missing something when it comes to tax allowances and reliefs? These easy to follow 6 mini-guides will have you on top of the tax side of things in no time at all.