True self-employment

A self-employed person does not usually have tax or National Insurance contributions (NICs) deducted before payment, nor are employer’s NICs due on that payment. The definitions of ‘employment’ and ‘self- employment’ are complex. Visit and download ES/FS1 Employed or self-employed for tax and National Insurance contributions.

If HMRC finds workers have been wrongly treated as self-employed instead of employed, the liability for any unpaid PAYE tax and NICs falls on the employer. But employers should not ‘play safe’ and treat all their workers as employed as that will mean paying employer’s NICs on their pay, pension scheme contributions, and providing such ‘staff’ with paid holidays and sick pay. Genuine self-employed workers could also be put at a cash-flow disadvantage if tax is deducted on their fees at source, which may only be claimed back from HMRC when their PAYE payments and self- assessed tax liabilities are reconciled. Both employers and self-employed staff need professional advice to avoid any belated HMRC interpretation of their employment relationship. The same applies to any organisation (‘intermediary’ or ‘client organisation’) using services from individuals provided through service companies or partnerships.