Expanding upon the differences of the various employment statuses (see 1.1) I will explain the most notable legalities and taxation processes involved, in easily digestible chunks of course:
Employed (full-time/part-time)
Being employed, either working full or part time, requires that you pay income tax which is (as GOV.uk kindly explains) tax on your income (who would have guessed?). The amount of income tax you pay depends on your annual earnings, and is deducted by your employer. Paying income tax is only applicable to you once your annual earnings are over and above a certain figure. There are different tax rates and bands that are used to calculate the amount of tax you pay. See below:| Income Tax band | Income Tax rate on non savings income | Income Tax rate on savings | Income Tax rate on dividends |
|---|---|---|---|
| £0 to £2,710 Starting rate for savings |
Not available | 10% | Not applicable - see basic rate band |
| £0 to £34,370 Basic rate |
20% | 20% | 10% |
| £34,371 to £150,000 Higher rate |
40% | 40% | 32.5% |
| Over £150,000 Additional rate |
50% | 50% | 42.5% |
(ref: http://www.hmrc.gov.uk/incometax/basics.htm#6)
Self-Employed / Freelance
Being self-employed, you are still required to pay income tax, however you must calculate and handle this yourself rather than having your employer do this for you. Unlucky. Aside from this, you will generally follow the same rates and bands as an employed individual, the major difference being that there is a little more work on top for you to do in documenting your earnings and calculating your Tax and National Insurance contributions. It is not uncommon for someone who is self-employed to hire an accountant, and therefore let the responsibility lie with someone else. Delegation is a beautiful thing (albeit expensive in this case).
Unpaid / Voluntary
Voluntary workers or unpaid interns are exempt from paying Tax and National Insurance, as they are getting no income from your employer.
Apprenticeships
In the case of Apprenticeships, where you are usually earning under the minimum amount of earnings required to start paying tax, you are also exempt from taxes. If the circumstance arises that your pay is increased enough that you are within a tax bracket, you will then be required to pay tax and national insurance, though this will be calculated and handled by your employer.
