As everyone probably already knows there are tax and national insurance advantages to being self employed and to employing casual workers on a self employed basis.

As an employee, on most of your income (assuming you aren’t a higher rate tax payer) you will pay 20% tax, 12% employees NI and your employer will pay 13.8% employers NI, so thats 45.8% in tax and NI.

If you are self employed the equivalents are 20% tax, 9% Class 4 NI and £2.50 per week Class 2 NI, plus you can claim business related expenses that you probably wouldn’t get as an employee.

Whether employed or self employed you will get a tax free allowance of £7475.

For full details follow these links:

http://www.hmrc.gov.uk/rates/it.htm

http://www.hmrc.gov.uk/rates/nic.htm

So why isn’t everyone self employed?

Why not start by taking the HMRC test known as the ‘Employment Status Indicator’?

https://esi2calculator.hmrc.gov.uk/esi/app/index.html

You can take the test as many times as you wish and record the answers but if the result says you are really an employee then you need to speak to your employer and discuss the risks and liabilities that they will potentially face.

The most recent HMRC case on Employment Status relates to Weight Watchers and because HMRC successfully argued that their leaders were employees and not self employed it will cost Weight Watchers an estimated £23.5m in back taxes. When employment status goes wrong its the employer that gets the bill and often can’t recover the back taxes from the ’employees’.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8501230/Weight-Watchers-to-employ-its-1700-slimming-leaders.html

http://www.telegraph.co.uk/finance/yourbusiness/7346758/Taxman-forces-slimmers-to-put-on-weight.html

One possible solution is to use Limited Companies, because a Limited Company can never be treated as an employee. Plus there are tax advantages in Dividends. But be careful of the IR35 Rules, follow my blog links to find out more.

Consultants beware of IR35 – use the QDOS Model Contract (Free)

Salary v’s Dividend – how much money could I save?

Things you need to know about Dividends…..

IR35 came into existance in 1999,  it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.

Follow my blog for more useful facts, tips, suggestions and ideas.

steve@bicknells.net