Not such a daft question as it might sound! Many people and the firms they work for may think that they are self-employed, but the Revenue might take a different view. It is common practice for people to hand their clients letters saying that they are self-employed and responsible for paying their own taxes but, unless they really are self-employed in the eyes of the taxman, such letters are not worth the paper theyre written on.
Even the fact that someone has registered as self-employed with the Revenue is not definite proof, although it may point towards this if they have been registered for many years, submitted regular tax returns as self-employed and the Revenue have never challenged that status.
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.
There is no actual statutory definition of self-employment. It is a status that has been decided by the courts over a long period of time based on case law. In deciding whether a person is employed or self-employed, the courts will tend to look at the overall picture rather than at individual features. Each case is determined by the presence or absence of well-established pointers, such as the following:
a) whether a person has to do the work themselves or is allowed to sub-contract it to others;
b) whether they control the work or have a boss who tells them what to do and when, where and how to do it;
c) whether they work a set number of hours or work for as long as is necessary to complete a task;
d) whether or not they risk their own money to do a job, such as buying materials or incurring expenses;
e) whether they are paid an hourly or daily rate or are paid a fixed fee regardless of how long the task may take;
f) whether they use their own equipment or that of the person hiring them to do a task;
g) whether or not they regularly work for a number of different people;
h) whether or not they must correct unsatisfactory work in their own time or at their own expense;
i) whether or not they are generally regarded as belonging to the organisation they work for;
j) whether or not they do anything indicative of running a business, such as employing people or advertising;
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.
Come and speak to us if you are in any doubt about your employment status or that of someone who works for you. We will give you our opinion based on all the given circumstances. However, please note we cannot accept responsibility for any PAYE liabilities that may arise later as it is a very subjective area and if there is any serious doubt we always recommend consulting an employment lawyer.