cheap accountants - self employed

Here at cheaper accountant we often find clients can get a little confused about the real meaning of being self employed and what this means in relation to income tax.

We have completed self assessment tax returns for clients and made corrections to returns already started by clients due to this confusion.

From our experience limited company directors often put themselves within the self employed category but this isn’t necessarily correct when it comes to income tax.

For income tax purposes, a limited company director (this can be the single shareholder or owner) who receives salary and dividend payments from a limited company under his or her control is considered to be an employee of the limited company as well as a shareholder in the limited company. This means that the employment pages of the self assessment tax return need to be completed.

A sole trader who operates outside of a limited company is generally classed to be self employed from an income tax perspective. This is what we tend to mean when we reference being self employed. In this case it is correct to complete the self employment pages of the self assessment tax return.

It is very important get this distinction correct as you could end up overpaying income tax and national insurance contributions if a mistake is made.