Setting up as self-employed is one of the simplest and quickest ways of starting your own business.
In a time when increasing numbers of people are facing unemployment or redundancy, starting your own business may be an attractive idea. The lure of being your own boss may be a driving factor behind the decision to become self-employed, but this will need to be balanced with the risk of not being certain of when you will receive a regular income, and the need to organise your own sick pay and pension.
If you take the decision to start up your own business, you must register with HM Revenue and Customs for tax and National Insurance purposes, as well as ensuring that you obtain any necessary permits and/or licences. You will also be required to complete a self-assessment form. The latest that you can register with HM Revenue and Customs is the 5th October after the tax year for which you need to submit a Self Assessment tax return, for example, the 5th October 2011 for the 2010/11 tax year. If you fail to register in time, you may be charged a penalty.
Some workers may be uncertain if they are an employee, or if they are self-employed. Employment status is not necessarily a black and white issue, and consideration will be given to range of factors when determining an individual’s particular status. . If you are self-employed, you do not have a contract of employment with an employer, but you may be contracted to provide services over a certain period of time for a fee. Employees work under a contract of services, whereas self-employed workers work under a contract for services. It is very important that you know what your employment status is, as many employment rights, such as the right not to be unfairly dismissed, and the right to redundancy pay, rely on you being an employee.
If you are unsure about your employment status, the following are indicators that you are likely to be self-employed:
- Do you have the final say in the running of your business?
- Have you risked your own money in setting up your business?
- Are you responsible for any losses and profits generated from your business?
- Do you provide the majority of your own equipment?
- Are you able to hire other people?
- Can you work for others at the same time?
If you can answer ‘yes’ to most of the above questions, it is likely that you are self-employed rather than an employee.
Even though you are self-employed, you are still entitled to legal protection, for example, you still have the right to be discriminated against, and you still have the right to a safe and healthy working environment on your client’s premises.
It is important to remember, when considering becoming self-employed, that whilst “employees” typically pay Class 1 National Insurance contributions, self-employed people pay Class 2 contributions, and depending on their level of earnings, sometimes Class 4 contributions also.
If an individual finds themselves out of work and cannot secure new employment those who have paid sufficient Class 1 National Insurance Contributions (i.e. “Employees”) are able to claim contribution-based Jobseeker’s Allowance. This provides them with a vital source of income during this period of job-seeking and financial hardship. Those who are self-employed, and have paid only Class 2 and/or Class 4 contributions will not be able to claim contribution-based JSA.
For more information, contact your local CAB or see www.nidirect.gov.uk
Sian Fisher is an Information Officer with Citizens Advice Bureau