We are often asked by our dental clients what the differences are between being employed and self-employed.
Senior Dental Accountant, Simon Vincent blogs:
Firstly, what’s the difference?
If you’re employed then you turn up to work for your employer, do the work they require you to do and go home. You get paid a salary (or perhaps an hourly rate) from which your employer deducts tax and national insurance.
If you’re self-employed then you are hired to complete a specific task. Within reason, the manner in which you do this is up to you and when the job is complete you invoice your customer, who then pays you. At the end of the year, you complete a tax return and pay tax and national insurance due on your profits.
We know that the tax you pay is based on the amount that you earn, not how you earn it, so what is the big deal? Well, employees are entitled to a raft of benefits that those of you who are self-employed are not. Things like paid holidays, sick pay, maternity pay etc. must legally be available to employees. As an employer, this costs you money (holiday alone is 28 days per full-time worker where they aren’t doing any work for you). In addition, you need to pay an additional 13.8% employers National Insurance.
In fact, a client recently asked us the difference. What would her hygienists need to be paid as employees for the cost to the business to be equal to their £35 hourly rate as self-employed? The answer, £28. That means it costs you £7 per hour to employ somebody.
So why can’t I just be self-employed?
Unfortunately, this isn’t your choice. Your employment status is very much a byproduct of your circumstances. Simply saying that you are self-employed, and not being paid via PAYE do not mean you aren’t an employee.
There are certain indicators that HMRC will look at, these include:
- Required to work regular hours?
- Minimum number of working hours?
- Responsibility for managing workload (how should it be done, and by when?)
- Can somebody else do the work?
- Does the individual work for multiple businesses?
- Contractual terms
- Financial risk
- Providing own equipment
It’s a combination of these things that determines your employment status and it is the business’ responsibility to pay you appropriately, however, it isn’t always clear cut. Indeed, some of the circumstances of many associate positions would appear to indicate employment (the principal providing the place of work, setting the workings hours, providing equipment etc). This is why it is important to have contracts in place that clearly specify the terms of the engagement. A legal specialist should always be involved, but the BDA do provide template contracts you can use.
If you are a self-employed dentist and you need new dental accountants to help you with your tax return and keep your earnings as tax efficient as possible then call us on 01872 300232 or email us at hello@hivebusiness.co.uk.
