Starting a new business
The tax and National Insurance you have to pay will depend on your employment status. It is therefore important that you know whether you are employed or self-employed. In most cases it is obvious which 'heading' you fall under. However, there may be some occasions when there is some element of doubt.
If you answer 'Yes' to the following then you are probably employed:
- Do you yourself have to do the work rather than hire someone else to do it for you?
- Can someone tell you at any time what to do or when and how to do it?
- Are you paid by the hour, week, or month? Can you get overtime pay?
- Do you work set hours, or a given number of hours a week or month?
- Do you work at the premises of the person you work for, or at a place or places he or she decides?
If you answer 'Yes' to the following then you are probably self-employed:
- Do you have the final say in how the business is run?
- Do you risk your own money in the business?
- Are you responsible for meeting the losses as well as taking the profits?
- Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves?
- Are you free to hire other people on your own terms to do the work you have taken on? Do you pay them out of your own pocket?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
HM Revenue & Customs has a number of helpful leaflets in their Business Gateway section. These include:
- CWL1 Starting your own business?
- CWL2 National Insurance contributions for self employed people. Class 2 and Class 4.
- IR 56 Employed or Self employed?
- IR 120 You and HM Revenue & Customs.
- IR Leaflet How to contact HM Revenue & Customs.
- NE1 First steps as a new employer.
- SA/ BK3 Self Assessment. A guide to keeping Records for the self employed.
- SA/BK8 Self Assessment. Your Guide.
- Notice 700/1 Should I be registered for VAT? HM Revenue & Customs Web site
- C&E Leaflet New to Importing and Exporting? HM Revenue & Customs Web site.
- DTI Leaflet Setting up in business.
Late notification fine
You must ensure you inform HM Revenue & Customs that you have become self employed as soon as possible. If you do not you may find yourself paying a fine for late notification of your change in status.
This page was last reviewed on 03 April 2006. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
