Is Self-Employment or PAYE Better?

There are many factors to consider when making the decision between working as a PAYE employee (Pay as you earn) or self-employment. Here at CIGMA Accounting, we have an extensive amount of experience with clients seeking advice around this topic.

When deciding which choice is best for you, you should consider aspects such as tax efficiency, benefits and personal non-financial factors. CIGMA Accounting offers analysis and expert knowledge to help you make an educated decision.


An individual is classified as self-employed when they are working for themselves. Self-employed individuals run a business for themselves and take responsibility for its successes or failures. They can keep all business profits after tax is paid.


An individual is classed as an employee when they have entered a contract of employment. To gain employment status, the contract will state that the employee will do work or services for a personal reward. This reward can be money or a sort of benefit. An example would be the promise of a contract or future work.

Different Approaches to Tax

A crucial difference between self-employment and being on a company’s payroll is the way in which the taxes are paid. When an individual is self-employed, income tax is paid once work-related expenses have been deducted. Depending on each individual case, class 2 and 4 National Insurance contributions may need to be made. Majority of self-employed individuals are required to complete a Self-Assessment tax return annually.

Conversely, employees are taxed automatically through the PAYE system and make class 1 National Insurance contributions. An employed individual will usually not be required to complete a Self-Assessment but if certain conditions are met, they may be required to complete a Self-Assessment. If an employee on a PAYE job earns over £100,000 or earn additional untaxed income, they must complete a Self-Assessment. A common example of this is income from rental properties. You must pay tax on the profits.

As employees’ tax is paid automatically through the PAYE system it reduces human error and requires less manual effort of the employee. In comparison, self-employed individuals will have to complete a Self-Assessment to pay their tax liability. At an expense, sole traders will often hire professionals to complete the self-assessment as it is time consuming, meticulous to complete and you must have a vast amount of knowledge to be the most tax efficient.


A self-employed individual can claim expenses for certain items if it relates to their business. These include laptops, phones and vehicle-related costs. For this claim to be accepted and treated appropriately, the expense should strictly be for business use. However, employees will usually only be allowed to claim expenses when they have purchased something that was necessary for their work and was not reimbursed by their employer. All expenses that are claimed must have a receipt.

To read more on expenses, please see our blog on “What is an allowable expense?”.

Employment Benefits and Rights Compared to Self Employed

Employee benefits

All employees of a company are entitled to rights which include national minimum wage, paid holiday, statutory sick pay, protection against unlawful discrimination, workplace pension, social security, workers compensation and job security. However, being an employee means that you are required to work regularly, do a minimum number of hours and you are not able to send someone else to do your work.

Self-employed benefits

Self-employed individuals tend to have more independence, freedom, work-life balance and additional tax deductions. Although sole traders have more independence, the lifestyle comes with the cost of having more responsibilities regarding the business. They are responsible for finishing any work in their own time, being personally liable and have tax planning limitations.


Employees often tend to have a more predictable income in comparison to sole traders. Employees must sign a contract with the employer which states that the employer must pay their staff an agreed amount of money. On the other hand, self-employed individuals will have a more unpredictable income as it depends on the current state of the market and consumers. These changes can influence the income of the sole trader positively or negatively.

Non-Financial Incentives for Self Employed and Employee

In order to determine whether being self-employed or an employee is more beneficial, you should consider all factors. Non-financial incentives can help to determine which choice suits you best. We have laid out the main non-financial incentives for both career paths.

Self Employed:


Our CIGMA Accounting Suggestion

Deciding the choice between an employee or being self-employed is complex and will be dependent on each individual case. Ask yourself, are you looking for a clear-cut proven career path? Do you want to beat the ‘Tax-Man’ and claim back expenses? Do you enjoy socialising with co-workers, or would you prefer independence? Thus, it’s important to consider all factors and the results it entails. We here at Cigma Accounting can provide you with advice and inform you of ways to save money.

If you require assistance to do so, please do not hesitate to get in touch.