One of the common questions we are asked at Steven Glicher and Co Accountants, is related to the types of employment individuals can be registered for with HMRC.
It’s a legitimate concern, as with all types of employment come different complexities and tax regulations that govern how much you declare and ultimately have to pay to HMRC.
If you’re confused about your employment situation, and want to make sure you aren’t caught out doing the wrong thing, and paying the wrong price, read on. In this blog we will look at the legalities and logistics surrounding types of employment and which is right for you in your business situation.
You can be employed in many ways
First of all, it’s important to know that, not only can you be employed and self-employed at the same time, but in many circumstances it is beneficial to your tax situation.
You don’t have to limit yourself to one form of employment, as far as HMRC is concerned, and many self employed people combine a multitude of different types of employment and income methods without any problematic legal issues coming from the taxman.
Types of Employment/Income Methods
1. Sole Trader
A sole trader is essentially running their own business as a self-employed individual. This might be anything from freelance writers and graphic designers, to gardeners or electricians. Being a sole trader means that you often work for a multitude of clients and have personal liability for the business.
A contractor works in a similar way to a sole trader, but is usually works for a single business on a long-term basis. In this way, contractor is somewhere between employment and self-employment. When you are contracted, the onus is on you to manage your own tax and finances, but are committed to working for one employer.
Most people are working in full employment, sometimes known as PAYE. Being employed simply means you have a contract to work either set hours, or for a salary with a single business. In this circumstance, your employer will manage the financial side of your employment, including all tax payments.
5. Owning a Limited Company
Owners of a limited company can very similar to sole traders, in many respects. However, the larger the company, the more complex your tax and accounting situation can be. From an employment standpoint, the biggest difference is the way you draw earnings, which is paid out through the company and not directly to you.
6. Property, Royalty and Capital Gains Income
This category includes, landlords, entrepreneurs, artists and anyone who earns a living through capital gains. Technically, these people are not technically considered as being self-employed, but they can be liable for taxes that other employment types aren’t.
The legalities of one or all of the above
As a British citizen you can legitimately earn income from any of the above categories or all of them combined! Knowing whether or not you can be classed as employed and self employed at the same time, comes from understanding how the employment and income system works.
As a general rule, HMRC wants as many people as possible to be in work, earning income and paying tax. Which means that you can earn income from one single category of employment, or two or three different categories combined without any problems. The caveat being, of course, that you do have to inform HMRC of everything you earn, and make sure that it is all categorised correctly.
HMRC Doesn’t mind how you earn, just as long as your tell it
As far as HMRC is concerned, it is not enough to be paying some tax; you need to pay exactly what you owe!So, for example, if you are an employed worker, you must let HMRC know if you are earn extra money, whether that is through property rentals or a small business, or anything
The good news, though, is that are benefits to being both employed and self employed.
Everyone’s individual circumstances dictate what is the best course of action for them, but as there are different employment methods and types of income are taxed in different ways, there can be taxation benefits for finding the right employment category that best fits your working situation.
By taking taking advantage of your options, you might save yourself a bit of money. If you’d like to hear about this in more detail, get in touch with us.
The other benefit of course, is that being self employed alongside employment can be a great source of happiness and mental wellbeing. Most people who run their own business have a passion for it, which means that having your own business alongside your current job can provide you with a sense of happiness and accomplishment you perhaps don’t find in employed work.