The distinction between one and the other may be hard to detect. However, if you both own the operating assets (machinery) and decide the working hours yourself, and in addition, may experience losses, then you are most likely running a business in the perspective of the tax authorities.
On the other hand, if you only work for a single principal who provides all necessary tools/operating assets and furthermore, decides on when and how the work is to be carried out, then you probably will be
considered an employee.
By own expenses and risks
An important condition is that the activities of the business enterprise shall be carried out on the executive's - often the owner's - own expenses and risks.
“By own expense” means that the executive covers the expenses related to the work. These can be costs of materials, purchasing costs and running expenses, etc.
“By Own risks” means that the executive has the responsibility for the results of the assignment. The principal can, for instance, complain if not satisfied with the results.
The business must be able to generate a financial profit over some period of time. It is not necessary to have a profit immediately if it is conceivable that a profit will occur at some later stage.
The business must carry out some form of activity. Passive capital dispositions such as stock investments and letting of own residence do not constitute a business enterprise. However, the self-employed person does not have to be active himself/herself, but may instead have employees who carry out the work.
One of the decisive conditions for acceptance by the Tax Authorities is that the business both involves activities of a certain extent and duration of a certain period of time. Neither term is actually defined. The extent and duration will be assessed by the Tax Authorities. Single assignments or casual assignments are not enough to constitute a self-employed business.
If several of the following points are true, you are most likely running a business:
You have several principals on a regular basis, consecutively or at the same time.
You have your own office or workshop.
You provide the necessary raw materials yourself.
You use your own operating assets such as machines, transportation, computers.
Your turnover is generated by delivered goods or services rather than per time unit. However, as a consultant, you may very well be paid by the hour.
The work does not necessarily have to be carried out by you. Instead you may use someone employed by you.
The assignment is limited, both with respect to time and extent.
When the assignment is completed, you cannot demand another from the principal.
The principal has no professional nor managerial authority over you.
The principal may complain and seek compensation if not satisfied with the result.
The principal pays for the assignment as a whole, not for the individual elements such as materials, management, use of machinery etc.
The above list is not complete. Note that there is no single point that is considered decisive. In fact, you must expect the tax authorities to examine your business as a whole before a decision is reached.