Am I actually Self-Employed

Self Employed Contractor

If you have been offered work for the first time as a self-employed contractor, the first thing to clarify is whether you will actually be considered, for tax purposes, to be self employed.

The distinction between a self employed contractor and an employee is not straight forward and wording in a contract cannot determine if you are self-employed or an employee. Recently, the Revenue Commissioners have been paying particular to attention to the issue of contract work and they have indicated that this is an area they will continue to look at into 2016.

This article should help you to establish whether you are indeed a self-employed contractor and what this status entails for you.

Am I actually self-employed?

The Revenue Commissioners will consider on a case by case basis whether or not you are in fact a self-employed contractor. The main rule they look at is whether or not you stand to profit from the business and whether or not you share the risk or rewards of the business. One particular area they looked at over the last few years was locums in the retail, pharmacy and medical industries. In a large section of cases they determined that the locums i.e. contractors did not stand to profit from the business, did not share risk and rewards, were not in control of their working hours and therefore were in actual fact employees. As a result, the employer had to pay backdated employers PRSI

In general, the below indicators will be looked at by the Revenue Commissioners in determining if you are an employee or self-employed. They may not all be present but generally the majority of them should be

The individual;

Owns his or her own business.

• Is exposed to financial risk by having to bear the cost of making good faulty or substandard work carried out under the contract.
• Assumes responsibility for investment and management in the enterprise.
• Has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks.
• Has control over what is done, how it is done, when and where it is done and whether he or she does it personally.
• Is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken.
• Can provide the same services to more than one person or business at the same time.
• Provides the materials for the job.
• Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account.
• Has a fixed place of business where materials, equipment etc. can be stored.
• Costs and agrees a price for the job.
• Provides his or her own insurance cover e.g. public liability cover, etc.
• Controls the hours of work in fulfilling the job obligations.

I am self-employed, what next?

Once you are satisfied that you will be considered as a self employed contractor the next question is whether you are going to trade as a sole trader or through your own company. There are several factors you should consider when choosing how you want to trade and your accountant can talk you through these in detail.

You will also need to talk to your accountant about taxes as it is vitally important to understand what taxes you may be liable for as a self employed individual. 

If you are operating as a sole trader you should register for Income tax.  If you are operating through a company you should register for Corporation tax.

If operating as a company, the company will need to register as an employer and return the taxes deducted on the wages paid to you as director on a monthly basis.

The business (whether sole trade or not) may also be required to register for VAT.   If the value of the services provided exceed or is likely to exceed €37,500 in a twelve month period then the business must register for VAT. 

If a company hires a self employed contractor they are not required to pay employer’s PRSI on payments, this carries certain consequences for you the contractor in that you will not be automatically entitled to a number of social welfare payments such as jobseekers benefit.  The self employed individual is also not entitled to the normal employee benefits such as:

• Holiday pay
• Sick pay
• Redundancy notice and payment

It is important that all these issues are considered before deciding whether or not to become a self employed contractor.

How we can help

If you’ve read something in this article that interests you and you’d like to discuss it further, feel free to contact us. 

 

Date published 24 Jun 2016

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.