When you decide to set up in business, although you may be pretty certain that you're self-employed, HM Revenue may think otherwise.
And I've heard it said that they like to reclassify people as employees because that means they get more National Insurance (both employers and employees pay it when someone's employed, but for a self-employed contractor only (s)he will pay National Insurance).
HM Revenue say you're probably employed if you:
- have to do the work yourself [i.e. can't send someone else to do the work on your behalf - bit of a sticky one that if you're a one-man or one-woman band]
- work for one person at a time, who is in charge of what you do and takes on the risks of the business
- can be told how, when and where you do your work
- have to work a set amount of hours
- are paid a regular amount according to the hours you work, and get paid for working overtime - even if you do casual or part-time work, you can still be employed
And they also say that you need to look at what you do for each customer individually. You may be employed by one and self-employed for another...
Why can't they make things simple??
In his book "The Quick Guide to Working from Home" which I read yesterday, Hugh Williams provides a much longer and more comprehensive list of factors which might indicate employment or self-employment, e.g. do you have to wear a uniform, do you provide your own tools and materials.
HM Revenue will look at the situation as a whole rather than just at one measure. So if you are a one-man or one-woman band and don't have anyone else you could send as a substitute, they won't say you're an employee just because of that (or they jolly well shouldn't, anyway).
If you're in any doubt about whether you're employed or self-employed, take professional advice.
It does matter because if you're found to be employed instead, there'll be a large tax bill involved for someone - your employer if you're not a limited company, your company if you are - that's called IR35 and is a whole separate issue!
And remember, HM Revenue want you to be an employee because they get more tax - so cover your back!