In UK law there are many rights and obligations associated with employees. To know about these rights, first of all we have to look up the definition of employee.”An individual who has entered into, or works under contract of employment” (ERA 1996)The contract of employment may be made written or orally. It is important to differentiate between employment and self employment. Each type of contract has different implications regarding taxation, healthcare and protection laws. Two basic tests have to be performed to check whether it is employment or self employment.These are mentioned below.Control Test:The court will consider whether the employer has control over the way in which the employee performs the duties. If employer has control then it will be the contract of service (employment).IntegrationIf employee is so skilled that he cannot be controlled in the performance of his duties then it will fall into the contract for service (self-employment). The distinction between employed and self employed is very essential because certain rights and obligations arise in each case.So implications are mentioned below:TaxationThere are number of deductions can be made by an employer for income tax under PAYE from salary of employee. But self employed person is directly responsible to the HM revenue and customs for tax due.Protection:There is legislation for the protection and rights of employee including minimum period of notice and remedies for unfair dismissal. As there is no employment contract in contract for service, so self employed person is not entitled for these rights.VATEmployees do not have to get register for VAT but self employed has to be registered for VAT if he meets the criteria for compulsory registration for VAT.BankruptcyEmployees are the preferential creditors of the company in the case of liquidation or bankruptcy. Contractors or self employed persons are treated as non preferential creditors if employer is liquidated.