More and more people are becoming self employed. The recent economic downturn has led many more individuals to ‘give up the day job’ and work for themselves, and this trend looks set to continue. But what exactly is self employment?

Characteristics of self employment

Self employed individuals are those who work for themselves, rather than working as an employee of another company.

Self employed people run their own business affairs, and derive income from the profits generated by that business. The proportion of those profits to which each individual is entitled will depend on the legal structure you choose.

Self employed individuals are generally required to take a very hands-on approach to their work. The majority of self employed people in the UK are also ‘one-man bands’, who are responsible for every aspect of the running of their business.

It is worth remembering, though, that being self employed and ‘running a business’ are not the same thing; many retired people are self employed for tax purposes, for example.

Self employed people are responsible for their own tax affairs. Rather than paying income tax and National Insurance through the PAYE system, self employed people generally pay tax through self assessment. This requires them to fill in an annual tax return, work out how much they owe, and pay HM Revenue and Customs themselves.

As a self employed person you can, theoretically, set your own hours and make your own decisions about the course of your business. But self employment is not for everyone. If you are deciding whether or not to become self employed you may wish to read our article on the benefits and drawbacks of self employment.