It is a truth universally acknowledged that self employed people find it easier to get tax relief on their business expenses. For example, let's assume you go on a course to update your skills or knowledge. Those who are self employed can claim tax relief on 100 per cent, for the employed it is a bit more tricky.
You can only have tax relief if that course was necessary, for the rules state that if you are self employed you can have tax relief if the expenditure is wholly and exclusively for business purposes, but if you are employed, it must be necessary as well as wholly and exclusively for business purposes. Arguing that something is necessary is always tricky. It is quite clearly going to apply for things like professional indemnity or a professional subscription – but anything else and you start getting into murky water.
Does it make any difference to the person or entity employing your services, perhaps a practice? Yes. If you are employed, they must deduct tax and employees national insurance from your pay which means that they must operate a PAYE system. They also have to pay employers national insurance, which, at 13.8 per cent isn't exactly cheap.
Dental associates and dental specialists such as periodontists have long been able to claim self employed status quite happily without question. However, HMRC is now looking into the self employed status of individuals. It is expected that this will initially be targeted at IT contractors but it is likely not to be long before HMRC starts delving into the world of dentistry.
It is important to remember that you do not have a choice of whether you are self employed or employed – it is a fact. See how many of the following statements apply to you. If most of them do then you are likely to be employed:
- Do you have to do the work yourself?
- Can someone tell you at any time what to do, where to carry out the work or when and how to do it?
- Do you work a set amount of hours?
- Can you be moved from task to task?
- Are you paid by the hour, week, or month?
- Can you get overtime pay or bonus payment?
What about the following questions? Answer yes to one or more of these questions and it is likely that you are self employed:
- Can you hire someone to do the work or engage helpers at your own expense?
- Do you risk your own money?
- Do you provide the main items of equipment you need to do the job (not just the small tools that many employees provide for themselves)?
- Do you agree to do a job for a fixed price regardless of how long the job may take?
- Can you decide what work to do, how and when to do the work and where to provide the services?
- Do you regularly work for a number of different people?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
In spite of these widely acceptable criteria, HMRC is launching a test kit to help individuals judge their risk of being caught by the rules. It has stressed that this test kit should not be used to determine your employed/self employed status, but to assist with risk assessment.