Sole Trader Nightmare to Prove You Are Self Employed

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Many sole traders and sub-contractors may think that they are self-employed, but the Taxman might take a different view. It is a common practice for people to hand their clients business card, invoice and letter saying that they are self-employed and responsible for paying their own taxes.  This is insufficient to prove that you are self employed.

Let us accept that you have:-

  • Registered with HM Revenue & Customs as self employed
  • Got your UTR, Unique Tax Reference
  • Submitted tax return for few years

You may feel surprised but HM Revenue & Customs has a different view on defining “Self employed”. 

Generally being self-employed mean:-

  • You pay your Income Tax around 12-16 months after you have actually spent the money
  • You pay very low National Insurance contribution; around 2.75 per week or £11 per month and remaining National Insurance contribution will be paid 12-16 after you have earned money which depends on how much profit you make.
  • If you make loss you may not pay any Income tax or National Insurance contribution.
  • You can sometimes make payment late

However everyone who is in employment pays tax before they get paid.  Being self-employed gives you lots of control over your cash before you pay tax. 

This gets even tougher if you have any sub-contractor.  Imagine your sub-contractor gives you the invoice and a written letter informing you that he is self-employed.  You are still not in clear.  It is the responsibility of each business to ensure that you carry-out sufficient duties in ensuring that your sub-contractor is self employed “as per the understanding of the tax man”

Let’s try and check.  Please answer this question.

  • Own a business card?
  • Does your business have a website?
  • Do you have a letterhead?
  • Are you a member of any trade association?
  • Do you have your own professional indemnity insurance cover?
  • Have product and public Liability insurance cover?
  • Do you have your van or vehicle [if you are a tradesman]?
  • Travel to the work or site in your own vehicle?
  • Get paid by hour?
  • Do you get paid on a fixed day?
  • Do you have to wait for your customer to pay you?
  • Can you send somebody else to do your work?
  • Do you quote before you get the contract?
  • Give terms and conditions for the work you do?
  • Have any credit terms for the work you do?
  • Use your own tools to do the work?
  • Can you decide when and how to do your work?
  • Are you responsible for meeting the losses as well as taking the profits?
  • Are you responsible for correcting unsatisfactory work at your own expense?
  • Do you have to send an invoice to the company for your pay?
  • Get a fixed payment for a job (including materials and labour)?
  • You provide the main items of equipment needed to do the job?
  • You work for a range of different customers?

If you are clearly in business on your own account then you have nothing to worry about on this score. However, if you tend to work for just one client most of the time or each job is punctuated by long spells of unemployment, then you might be deemed to be an employee rather than a self-employed person. Remember, being employed or self-employed is not a matter of personal choice. It depends on your circumstances.

As you can see, some of these are very grey areas and it is not always obvious whether someone is self-employed or not. The consequences of getting it wrong can be severe though because all employers are obliged by law to operate PAYE on the earnings of their staff. Therefore, if you pay someone without deducting tax and NI and it turns out that they are not self-employed after all, you will be deemed to have paid them net and may be forced to pay even more tax and NI than if you had deducted it in the first place.

It is for this reason that many employers are loath to hire workers on a self-employed basis and insist that they work through their own limited companies. The onus is then on the worker to prove that they are truly self-employed otherwise they could fall foul of the dreaded IR35 rules.

If you have any more questions please contact us on 0161 339 4989 or email

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