Working for someone on a self-employed basis in the UK blends autonomy with responsibility. It means you’re not tied to one employer as an employee but provide services as a separate business entity.
While this structure offers flexibility, tax efficiency, and earning potential, it also removes employee rights such as sick pay and paid holidays. Determining your employment status is essential to avoid legal or tax complications.
This article explores how self-employed work differs from employment, what to watch out for, and how to stay compliant while benefiting from this arrangement.
What Does It Mean to Work for Someone on a Self-Employed Basis?
Working on a self-employed basis means offering your skills or services to one or more clients without becoming an employee. Instead of being paid through PAYE, you manage your own business and take full responsibility for its operations, taxes, and liabilities.
You may invoice for work done, work independently without close supervision, and agree on a “contract for services” rather than an employment contract. This allows flexibility in working hours, locations, and choosing clients.
However, with that freedom comes responsibility. You’re expected to manage your National Insurance contributions, income tax via self-assessment, and possibly register for VAT if your earnings exceed the threshold.
Whether you’re a sole trader, contractor, or operate through a limited company, your legal and tax obligations remain self-managed.
How Do You Know If You’re Genuinely Self-Employed or in False Self-Employment?
Not all arrangements that look self-employed are genuine. Some are labelled as such by businesses to avoid employer obligations, leading to “disguised employment,” which is unlawful.
Indicators of Genuine Self-Employment
- Control: You decide how and when the work is done
- Risk and Reward: You bear the financial risks and benefits
- Multiple Clients: You typically work with more than one client
- Own Tools and Equipment: You use your own resources
- Invoice for Work: You submit invoices instead of receiving payslips
Warning Signs of False Self-Employment
- You work exclusively for one company
- Your hours and duties are dictated
- You’re under constant supervision
- You cannot substitute someone to do the job
- You lack autonomy in pricing or decision-making
If these apply, HMRC may view the arrangement as employment. Businesses and contractors should use the CEST tool or seek professional advice to determine the correct status.
What Key Differences Separate Self-Employed Contractors from Traditional Employees?
Self-employed contractors and employees have fundamentally different relationships with those they work for. Contractors operate as independent businesses, while employees are integrated into the employer’s organisation.
Contractors must manage their tax affairs and are not entitled to employee benefits. Employees, however, enjoy rights such as holiday pay, sick leave, and redundancy protections. Misclassifying one as the other can result in legal and financial consequences.
Below is a comparison:
| Feature | Employee | Self-Employed Contractor |
| Contract Type | Employment contract | Contract for services |
| Tax Deduction | Through PAYE | Self-assessment |
| NI Contributions | Paid by employer and employee | Paid by the contractor |
| Working Hours | Set by employer | Chosen by contractor |
| Tools Provided By | Employer | Contractor |
| Benefits | Holiday pay, sick leave, etc. | Not entitled |
| Control Over Work | Employer-controlled | Contractor-directed |
Understanding these differences is vital to ensure you’re working under the correct classification.
How Does HMRC Determine Employment Status for Tax Purposes?
HMRC uses specific criteria to assess whether someone is genuinely self-employed or operating as an employee under the guise of self-employment. This assessment looks beyond labels and evaluates the working relationship in practice.
Tax law and employment law may assess status differently. HMRC focuses on the economic reality: control, mutuality of obligation, and the right of substitution. If the relationship mirrors employment, even without a formal contract, HMRC may reclassify it, potentially leading to backdated taxes and penalties.
Employers and contractors must ensure their arrangements align with HMRC’s guidelines and the off-payroll working rules when applicable.
What Is the ‘Control and Supervision’ Test by HMRC?
This test determines who has the authority over how the work is done. If a client sets your schedule, dictates your tasks, and supervises your day-to-day work, you’re likely under employee-like control.
On the other hand, a genuinely self-employed individual decides how and when tasks are completed, has the freedom to reject work, and isn’t subject to close oversight.
The greater the client’s control, the more likely HMRC may view the relationship as disguised employment. It’s essential that contracts and actual practices reflect independence to uphold genuine self-employment status.
How Does the Right of Substitution Influence Status?
The right of substitution is a strong indicator of self-employment. If a contractor can send someone else with similar skills to complete the job, they exhibit autonomy typical of a business rather than an employee.
However, if the contract states you must do the work personally and substitution is not permitted, this points towards employment.
Even if substitution is written in the contract, it must be realistically exercisable and not just theoretical. HMRC will evaluate if the right is used in practice, not just on paper.
Can You Work Exclusively for One Client and Still Be Considered Self-Employed?
Yes, it is legally possible to be self-employed while working for just one client. However, the more your working arrangement resembles a full-time job, the higher the risk HMRC may deem it disguised employment.
If you’re working long-term for a single client, lack the ability to substitute, use their tools, and follow their schedules, it could indicate an employment relationship. The key is whether you retain control over your work and act as a business, not an integrated team member.
To stay compliant, ensure contracts clearly outline your independence, and your working methods reflect genuine business autonomy.
What Are the IR35 Rules and When Do They Apply?
IR35, also known as off-payroll working rules, was introduced to prevent contractors from operating as limited companies while working like employees. It ensures such workers pay similar tax and National Insurance contributions as employees.
IR35 applies when a contractor provides services through an intermediary like a limited company, but the relationship with the client mimics employment.
If IR35 applies, the client or fee-payer is responsible for deducting tax and NI unless they’re a small business. Failing to comply with IR35 can result in backdated tax and penalties.
Does IR35 Apply If You Operate Through a Limited Company?
Yes, if you work through a limited company or personal service company (PSC), IR35 may apply. HMRC assesses whether your working conditions resemble employment.
If your role, control, and relationship with the client would be considered employment without the intermediary, IR35 rules kick in.
This affects how your income is taxed. Always review your contracts and practices with professionals to ensure compliance.
Are Small Businesses Exempt from IR35 Rules?
Small businesses in the UK are exempt from determining the IR35 status of contractors they engage. Instead, the responsibility falls on the contractor.
A business qualifies as small if it meets at least two of the following: turnover below £10.2 million, fewer than 50 employees, or a balance sheet total under £5.1 million.
Contractors must still assess their IR35 status when working with small companies and report taxes accordingly.
What Are the Benefits of Working for Someone on a Self-Employed Basis?
Choosing to work self-employed offers several practical and financial benefits that attract many professionals across industries.
Greater Flexibility and Control
Self-employed workers enjoy increased autonomy over their time, workload, and location. You can decide which clients to work with, what projects to take on, and how to structure your day.
This freedom often leads to better work-life balance and reduced stress, especially for those juggling personal responsibilities.
Increased Earning Potential and Career Growth
When you’re self-employed, you can set your own rates and take on multiple clients, boosting your income potential. Unlike fixed salaries, your earnings can grow based on your effort and business development.
You also gain valuable exposure to different industries and clients, which helps build a broader, more adaptable skillset.
Tax Efficiency and Business Deductions
Being self-employed means you can claim allowable business expenses, such as home office costs, equipment, professional services, and travel. These deductions can reduce your tax liabilities significantly, making your income more efficient and boosting your take-home pay.
While there’s financial risk, the ability to control your career path and income can outweigh traditional employment for many professionals.
How Can Employers and Contractors Avoid the Risks of Disguised Employment?
Disguised employment occurs when a self-employment arrangement mirrors that of a regular employee, potentially violating tax and employment laws.
To avoid this:
- Have a Clear Contract: Include clauses like substitution rights and independent project terms.
- Match Practice with Contract: Ensure daily work reflects true independence.
- Avoid Exclusivity: Let contractors take on other clients.
- Use HMRC’s CEST Tool: Check employment status using this official tool.
- Get Professional Advice: Speak with legal or tax experts to review your setup.
Taking proactive steps protects both parties from penalties, backdated tax, and employment tribunal claims.
Conclusion
Working for someone on a self-employed basis can be a rewarding choice, offering freedom and flexibility that traditional employment often lacks.
However, it comes with responsibilities, from managing taxes to ensuring that working arrangements genuinely reflect a business relationship.
By understanding HMRC guidelines, contractual expectations, and the risks of misclassification, both workers and businesses can benefit from lawful, efficient self-employment structures.
FAQs About Working for Someone on a Self-Employed Basis
Can a self-employed individual work under set hours without being considered an employee?
Yes, but if the client controls the schedule and tasks, HMRC may consider it employment.
How does working through a personal service company impact tax responsibilities?
It could trigger IR35, meaning you’d be taxed similarly to an employee if your working conditions resemble employment.
Can HMRC backdate tax penalties for misclassified workers?
Yes, HMRC can backdate liabilities and apply penalties if a self-employed person is deemed an employee.
What types of insurance should self-employed contractors carry?
They should have public liability insurance and, in some cases, professional indemnity or employer’s liability.
Do industries like construction or cleaning have different tax rules for self-employed staff?
Yes, under schemes like CIS or for commercial cleaners, tax may need to be deducted at source even for self-employed.
How can you tell if your business is exempt from IR35 obligations?
If your business qualifies as small (meeting two of the size criteria), you’re exempt from assessing IR35 status.
What are the common signs HMRC uses to identify disguised employment?
Key signs include control by the client, lack of substitution, fixed hours, and close integration into the business.
