To Be Employed or Self Employed?

To be Employed or Self Employed?

It’s a common question.

Joy Shaw, Senior Tax Advisor explores what you’ll need to consider if you’re thinking about becoming self-employed specifically within the construction sector.

The Employed role

Imagine you’re a bricklayer, carpenter, or general builder. You enjoy your job, working outside (and hopefully inside in the worst weather), and you’re employed by a small family business. And every week (or month) you receive your wages, with tax and national insurance deducted at source, so the net wages are yours to spend as you require.

Your employer contributes to your pension, and you can too, but your employer makes all the arrangements, although you may need to claim higher rate tax relief yourself. Perhaps your employer provides you with a company van, and if you use this just for work, and commuting home to site, (any private use being very insignificant), you’ are not taxed on the van.

Alternatively, if you have private use of a van, and can fill the vehicle up with fuel at work for private journeys, your employer will arrange for you to be taxed on this. For next tax year, 2025/26 you would be taxed on £4,020 van benefit and £769 fuel benefit.

If you’re a basic rate tax payer, you’ll pay 20% tax on the benefits, or if you are a higher rate tax payer (because your wages including the benefit and other income exceed just over £50,000) you will pay 40% tax on the benefits.

As you’ are employed, your employer probably provides all the tools you need and reimburses you for business expenses, but if you do incur expenses that are incurred “wholly, exclusively and necessarily” in the performance of your employment, (that your employer does not reimburse), if you have kept invoices and receipts, you can make a claim for tax relief from HMRC.

But maybe you’ve wondered whether you would be better off being self-employed, rather than being an employee? Or maybe circumstances change, and your employer asks if you would like to become a self-employed Contractor.

What would this mean for your income and tax liabilities?

Here’s 20 things you need to think about if you’re considering self-employment in the construction sector.

1. Being self-employed will mean being organised, dealing with administration, and finding your own work. But it also gives you the freedom to benefit from the fruits of your labour.

2. You’ll need to think about the type of business you will run. If you’re in business on your own, you will be classed as a Sole Trader. Alternatively, you may wish to go into Partnership with someone else or run your business as a Limited Company. . You can also opt to start as a Sole Trader and progress to a Partnership or Limited Company in due course as the business builds.

3. The first step will be registration with HMRC so that you will be issued with a tax return to calculate and pay your income tax, and to pay national insurance.

4. You’ll pay income tax on your profits after deducting expenses. This will be due for payment on the 31 January, following the end of the previous tax year on 5 April.

5. A subcontractor may have tax deducted at source which is set against the income tax due for the year.

6. Dependent upon the level of your profits, you may be required by HMRC to make payments on account in January and July, based on the previous year’s tax liability, with the balance to pay the following January or a tax refund to claim on submission of your tax return.

7. Self-employed people pay less national insurance than employed people, as there are less benefits such as sick and maternity pay available.

8. The self-employed pay national insurance but this is class 4 on the profit levels between the lower profit limit (currently £12,570) and the upper profit limit (currently £50,270), at the rate of 6%. The rate drops to 2% on profits above the upper profits limit, for the current and next tax year 2025/26. . This is lower than the 8% class 1 rate deducted from employee wages. .

9. You’ll also pay class 2 national insurance when self-employed, which adds each year entitling you to the state pension, at £182 for the year, in 2025/26 if profits exceed £6,845. . This is paid with tax and class 4 national insurance in January following the end of the tax year.

10. Paying a public liability insurance is a must for the self-employed, and other cover may need to be considered to make sure that any employees or the sole trader in the event of sickness or accident are covered.

11. When working in the Construction Industry, registration may be required:

• To work as a sub-contractor
• To act as a contractor, paying subcontractors

12. Turnover must be monitored for the VAT registration threshold.

13. Making Tax Digital (MTD) is on the horizon from April 2026 for those with qualifying income over £50,000, and April 2027 for those with qualifying income over £30,000.

14. You’ll need to choose the appropriate software to assist with record keeping, invoicing, debt collection, VAT returns and CIS, as well as a basis for preparing the accounts and taxable profits for the tax year.

15. If you need to buy or lease a vehicle for use in the business, there are a number of factors to consider. The government is encouraging the use of fully electric vehicles so it will be wise to consider these over hybrid or internal combustion engine (ICE) vehicles with some useful tax reliefs.

16. Other business assets, including plant, machinery tools and office equipment etc, and vehicle charging points will also qualify for tax relief to reduce the taxable profits.

17. The self-employed are able to claim many more expenses in running their business that are not available to an employed person such as:

• Workshop rent and rates
• Advertising
• Insurance
• Motor Expenses
• Small tools replacement
• Workwear
• Repairs to assets

18. A self-employed person will pay for their own pension contributions, but these will receive basic rate of tax at source i.e. a £1,000 pension contribution will only cost £800, and in addition higher rate tax relief may be available with a further tax saving.

19. When considering self-employment, many people make the choice to appoint an accountant to advise and assist you with all of the above.

20. Unlike being employed, being self-employed means you’re responsible for finding your own work, quoting and invoicing when completed, and you’ll incur expenses in running the business.

But whilst running a business is likely to be riskier than being employed, there is scope to charge more for work done, to have the freedom to work for multiple customers and to claim tax relief for business expenses. . For that reason, a successfully run self-employed business can be much more profitable and offer a higher level of satisfaction.

Here at Scrutton Bland we have years of experience in supporting new business start-ups and in running small to medium enterprises. Speak to Joy or one of the team to discuss your business plans and get the bespoke advice you need for your individual circumstances.