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What is the difference between Self-employed and a small business owner?
No doubt every self-employed is running a small business but when do you say that you are not self-employed? When is that you are running a business or just own a business run by someone else?
Tax man –
When dealing with HMRC, you have to register as a self-employed and do annual self-assessment to determine your business profits and taxes. However, if your business is a Limited company that employ’s you, then you don’t have to register separately as self-employed, although you’d still have to do your self-assessment to declare full income which may be salary and dividends received from your company.
Banks, on the other hand, will usually class you as employed or self-employed even ifyou don’t have a self-employed status with HMRC but if you own your Limited company you are considered as self-employed in the eyes of your Bank lenders.
Business world –
In the business world, most people will normally say that they have their own business. If you are keen to categories them into either self-employed or small business owner you’d generally continue questioning them until you’re either clear or confused.
Although, I don’t think it’s really that important how a business is classified. However, if it helps, personally I like to make the following distinction:
I find it easier to understand by changing the term ‘self-employed’ to ‘employed-by-client/customer’. So when you have a direct relationship with a person without employing them that person is self-employed e.g. your gardener, electrician, builder, accountant, lawyer, dentist, barber etc. Maybe they operate their business without registered limited company or under a limited company. If it’s a limited company or limited partnership they’re still the owner of the company and personally responsible for providing you their services.
Under this definition even if they have a number of support employees, they are still self-employed in my view because the client is engaging them directly.
It will become a business when the service providers in the above examples are employees of their company. So you are not relying on the owner of the company to provide you with a service but a representative employed by the company is sufficient for you.
The business itself can still be very small, perhaps smaller than self-employed businesses in some cases but it will be a business if the client is serviced by the employed staff.
For example, as an Accountant, while I have a small team of 5, I am still running a self-employed business due to the nature of the profession and practice licensing. On the other hand, if I buy my barber’s business and employ a hair stylist to run it that will not make me self-employed. Well, I will be a really bad businessman if I employ myself to cut other people’s hair. Instead, I will be the owner of a small business earning profits or making losses.
I hope this helps in making a clear distinction between self-employed business and non-self-employed business.