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2 min read

What’s the Difference Between Contractors and Employees in the UK?

Contractors vs Employees in the UK

The United Kingdom has a complex network of labor laws, with significant differences between employees and contractors. Understanding the differences between these two groups is key for employers looking to hire contractors in the UK.

In this blog post, we’ll explore the laws that apply to each group and highlight the key differences between them.

Key Takeaways

  • The UK has different payroll laws for employees and independent contractors.
  • Independent contractors are responsible for paying their own taxes and NICs.
  • Employers must carefully consider the nature of the work being performed and the level of control needed before deciding whether to hire an employee or an independent contractor. Otherwise, they could risk penalties.

Employees VS Contractors the UK

Employees

In the UK, employees are subject to a range of payroll laws, including minimum wage legislation, tax withholding, and automatic enrollment in a workplace pension scheme. Employers must also provide their employees with a payslip and submit regular reports to HM Revenue and Customs (HMRC) detailing the amounts paid and the taxes withheld (read more about payroll deductions in the UK in our guide to National Insurance contributions).

Independent Contractors

In contrast, independent contractors are not considered employees and are therefore not subject to the same payroll laws. Instead, they are responsible for paying their own taxes and National Insurance contributions (NICs), and for providing invoices for their services. However, it’s important to note that there are specific laws that apply to independent contractors, such as the requirement to register for VAT if their turnover exceeds a certain threshold.

One of the key differences between employees and independent contractors is the way that they are taxed. Employees have tax and NICs deducted from their pay by their employer, while independent contractors are responsible for paying their own taxes and NICs. This means that independent contractors need to keep accurate records of their earnings and expenses, and must submit a self-assessment tax return to HMRC each year.

Another difference between employees and independent contractors is the level of control that the employer has over the work performed. Employees are typically subject to a contract of employment and must follow their employer’s instructions, while independent contractors have more control over the way that they perform their work. This makes it important for employers to carefully consider the nature of the work being performed and the level of control that they need to have over the work before deciding whether to hire an employee or an independent contractor.

Employers who incorrectly classify employees as contractors could be liable for employee misclassification and the associated fines and penalties that can come with that. 

Conclusion

Employers looking to hire contractors in the UK must be aware of the different payroll laws that apply to employees and independent contractors. They must also understand the key differences between these two groups, including the way that they are taxed and the level of control that the employer has over their work.

By understanding these differences, employers can make informed decisions about the best way to hire contractors, and can ensure that they are in compliance with all relevant laws and regulations.

At RemotePad, Lech draws on his professional experience to write about employment taxes and payroll (both remote, and in-office). Lech holds a Bachelors’ degree from the University of Kent, a Master of Arts (MA) from Kings College London, and professional payroll and tax qualifications. He has 20 years experience advising on all manner of tax and business planning matters.

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