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When is a contractor not self-employed?

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“Am I self-employed or employed?”

That’s the question for contractors, freelancers and other members of the UK’s ever-growing flexible workforce.

The issue of employment status can be confusing, especially if you’re new to contracting.

Politicians and the mainstream media don’t help by conflating self-employment with contracting and lumping everyone who isn’t a conventional, permanent PAYE employee together in one homogeneous pot.

In this blog post we look at the main setup options for contractors. As you’ll see, contracting and self-employment are often two very different beasts.

I’m contracting through an umbrella company: am I self-employed or employed?

Employed. When as a contractor you join an umbrella company you become its employee. You will be given a contract of employment and – assuming you have joined a reputable, ethical provider like ADVANCE – will benefit from employment rights and benefits.

This includes statutory holiday pay, sick pay, maternity pay and paternity pay.

You’ll also be automatically enrolled into a workplace pension – a legal requirement under pensions auto-enrolment legislation.

You will be paid on a PAYE (pay-as-you-earn) basis in the same way you will have experienced with other employers.

Tax and National Insurance are deducted at source and at the end of your employment with the umbrella you will be given a P45.

If you are securing assignments through different recruitment agencies, having one continuous period of employment with an umbrella will be better in terms of tax code stability and obtaining mortgage and credit arrangements.

Indeed, this one of the main benefits of umbrella company employment versus being paid by the recruitment business via its own agency PAYE scheme.

I’m contracting through my own limited company: am I self-employed or employed?

This is an interesting one.

Many limited company (AKA personal service company) contractors see themselves as self-employed.

In reality, however, a PSC contractor will generally be an employee (as well as a shareholder and director) of his or her own limited company.

They will draw a director’s salary through a PAYE scheme as well as taking dividend payments.

If you’re a limited company contractor, paying yourself a small director’s salary will not only boost your tax efficiency – it will also ensure that you meet your National Insurance (NI) requirements.

This is significant when it comes to eligibility for the state pension and other benefits.

I’m a CIS subcontractor: am I self-employed or employed?

Self-employed. If you are registered with the Construction Industry Scheme (CIS) and are subcontracting with a recruitment agency’s supply chain partner, you will have had to demonstrate that you are genuinely self-employed and free from supervision, direction or control (SDC).

At least, that’s the process we go through at ADVANCE as part of our unique, FCSA-accredited self-employment solution.

Find out more

If you’re interested in our setup options for contractors, why not get in touch for an informal discussion? Call us on 01244 564 564 or request a callback.

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