Freelancers - any advice on pushing back to client? Or AIBU? (Long...)

[becstarsky]

Sorry, this is so long but I think I need to give the full picture.

I've got a client who are good in some ways (lots of bookings, pay me on time, nice people work there). They aren't exactly in the area I want to be working - but in this economic climate I'm glad of the work.

But I've got a problem with them - our last contract finished six weeks ago. The next contract is a big one - at least six months work starting November. Because I've worked for them so much they said that I need to go on PAYE. Fair enough, I said, as long as it's clear that I work for other clients on the days I'm not working for you. They said that was fine. But then when the offer came through they weren't happy about my having certain extra unpaid days off to work for the other clients, and pointed out that I get employee vacation days, bank holiday and Christmas paid as time off. But of course those days aren't much use for working for other clients as their offices are closed at Christmas too.

Also since I finished the contract I've had six e-mails and three phone calls all of which have been 'Sorry, know you're on holiday, but quick question re XYZ" "Apologies to bother you when you're relaxing but we really need you to talk us through ABC, can we talk on the phone on Monday 10am?" There has been no talk of them paying me for this - and to my shame I haven't raised it either as I wanted to be a helpful supplier. Bad move on my part.

Also in my last role I worked for them three days a week and a range of other clients two days a week. Every week at the end of my three days the people in the office would say 'Have nice long weekend!', 'Enjoy your days off!', 'Are you going to be spending lots of time with DSname?' Every week I'd say 'Well tomorrow I'm working at XYZ' but it never seemed to go in...

The trouble is I think they think of me as an employee who is 'on holiday taking a few calls' or 'a mum working part-time', whereas I'm actually a freelance consultant who works for them when I'm booked in. They don't have me on retainer.

They have offered me a permanent role as an employee several times, and several times I've turned them down. But it's starting to feel as though I'm a de facto employee! Something that I really don't want, as I much prefer working for my other clients.

So I think I need to find a way to say this that doesn't burn my bridges with the client. I don't want to lose future contracts with them. Or AIBU and actually this is just normal for a client to expect? I think I've handled this badly and now it is really stressing me out.

It sounds like a matter of setting up clear boundaries and expectations right from the start. (Gah, i hate using those kinds of words as it sounds so jargonny, sorry.)

I'll be interested to see what advice you get about how to put this right now, which might be hard but I'm sure it's possible. I'd also regard it as a useful lesson for the future. Things going a bit wrong is a really good way of learning, as I know from experience.

Is there a main contact person you could have a meeting with, so you could explain it all as you've explained it here? What you're saying seems reasonable.

Have you considered incorporating as a limited company? As far as I understand, it removes the risk for your long term client of being stung by HMRC for PAYE and NI, as you will clearly be an employee of your own company. You will then be free to run your business and service your other clients as you see fit.

The overheads of running a limited company are pretty small - an annual, return to Companies House, and a set of annual accounts to Companies House and HMRC - both can be done online, and require little accounting knowledge. Presumably you have an accountant who can advise - and probably sell you an off the shelf company too, although the Companies House webiste has instructions on setting up your own company for next to nothing.

Thanks SirEdmund - I'm glad you think it sounds reasonable at least. I should have had a talk with them the first time it happened - but at that point I didn't know that it was going to be part of an ongoing pattern of course! I think I do need to have a chat with my main point of contact directly - but I want to be careful that it doesn't come across as me complaining about them not treating me well (which wouldn't be right - they're a good client). It's not a complaint exactly - just a 'you do realise that I don't work here, right?'. Which could come across quite snotty if it doesn't come out right.

I would phrase it along the lines of 'You know when you ask me to be available for a telecon at a certain time, is there a project number I can arrange to invoice my time to because if I'm spending my time doing that work for you I am unable to carry out my other contracts that I am working on alongside'.... or words to that effect. Make it clear that you want paying - don't put this in a way that suggests that you're making any issue about it - its a fact of life - they want you to do some 'work' for them, even if its only an hour or two here and there - you need to be able to bill them for it.

OneHand's idea seems a good way to go if its doable for you.

Yes OneHandFlapping I did wonder about doing that. I'm just a little concerned about whether HMRC would take a dim view of me have a relatively small client pool and doing quite a lot of long-term contracts. So it would remove the risk for the client, but increase my risk. I have an accountant who could do it for me and DH is incorporated (he has lots of clients though) so I kind of know the score.

The trouble is, I'm really not looking to tax dodge, but all the things I can do to make it clear that I'm not their employee can be used as tax dodges, and I'm a bit wary of all that. I don't think HMRC would believe that it's all about me being my own boss - they'd assume I was doing it for financial reasons, wouldn't they?

If I did do it that way how long would it take my accountant to sort it out do you think? I guess there'd be a 'transition' and I'd have to do it at a time when I wasn't working for anyone rather than change status in the middle of a contract?

:) Yes, if you'd known it would end up this way you'd have been watching out for it! You will next time.

It's so hard to negotiate the being friendly and getting on with them v being 'business like'. I find it very hard.

I'd certainly have a chat, and be very lovely and reasonable in it. It's very likely they will be too. If it turns out they decide to be difficult then that's a whole other situation you can deal with then. Good luck.

Thanks mistlethrush - keep cross posting with everyone, sorry! I am 99.9% certain that they wouldn't dream of paying me for the phone calls and e-mails.

All the people in the team at that company send e-mails at 3am from their i-phones, and say 'I'm at the dentist, but I'm on the phone the whole time if you need me.' (Like you can really contribute to a complex discussion with a drill in your mouth...). 'I'm leaving early for my son's play, but I'm on the mobile!' is a typical thing to hear in that office.

And they have said 'Oh don't worry, if there's anything we don't get, we can always call you, can't we?'. To say 'No, actually, you can't unless you pay me.' would be baffling to them - because they're employees and they are 'always on' (and they're underpaid). It's going to be a Brand New Concept to them that I'm not 100% invested in their company when I'm not there. Or that the reason I'm not invested is that I Don't Actually Work There. They just plain don't get it.

I really don't want to sound petulant or like I"m complaining when I talk to them but I think unless I explain it in words of one syllable they will see it as 'She doesn't like to take calls on her day off' rather than 'She doesn't like to take calls from people she isn't working for when she's working for someone else'. But in saying it in words of one syllable I think they might easily think I'm being a bit difficult.

You must be the only person in the entire country who wants to pay MORE tax!

Running your business as a limited company is perfectly legitimate, as long as it's a true business. You are sacrificing the benefits of being an employee, such as paid holidays, employer pension contributions, employment rights etc.

Another advantage of a limited company is limited liability ie you can't be sued for more than the assets of the company, whereas an unhappy client of a freelancer could theoretically take them for everything they own.

I'm not a practising accountant, although I am an ACA, but I wouldn't have thought that having a few long term clients would be a problem. This HMRC page gives some information re situations in which you might have problems ie, they might try and extract more tax from you.

You could also potentially run your business through your DH's company. That would limit the admin overhead, and it's also perfeectly legitimate for a company to have more than one line of business, as long as the memorandum and articles permit it (most do).

Yes SirEdmund you're so right, it's a difficult line to walk. I want to be a helpful supplier who comes and slots into the team whenever they need me - that's part of why I'm useful to them. So I've acted like part of the team and been friendly and helpful.... and now I'm reaping the whirlwind

But then I've had lots of repeat business, so it is worth being nice in some ways. If they are difficult then it won't be the end of the world for me to lose the contract in November - but I'd rather not. It's a small industry - I can't afford to have a reputation for being difficult.

Another thought... my husband does IT contracts - and so that he doesn't have to mess around with all the tax etc he does these through a company - so that company handles invoicing to the employer, and pays DH on a PAYE basis. Might be possible to work something out like that?

In terms of the contact etc - offer an 'on-call' option if they want you to be available for that sort of service. Its only reasonable for employees to be contactable, but unless its part of your contract with them (which it clearly isn't) you aren't tied by the same rules - similarly you don't get the same perks as the fully employed staff.

Exactly. In a small industry you can't afford to have a rep for being difficult, and also you don't want to be known as a pushover. Be lovely and reasonable, which you are, and also be clear about what you will and will not do. It's hard, it's so hard.

OneHandFlapping I'm a rare bird! I just don't want to do something as a tax dodge. If it's legitimate and seems ethical, I'll do it. Especially if it helps me to keep this client in their rightful place i.e. within my contracted hours that I've invoiced them for!

That's interesting about DH's company. I'd have to ask him about that and ask our accountant (we share the same one) about the memorandum and articles. Many of my other business interests are linked to DH's - we have a few products we market together - but this is a completely different industry.

I am getting quite stressed about the idea of going onto PAYE after being my own boss for so long - like I say, I don't mind paying the tax, it's that 'you belong to us' mindset which this client already seems to have about me - months before they've even sent me a PAYE pay check!

SirEdmund It's hard, it's so hard. yy to this!

That's a brilliant idea about the 'on call' option mistlethrush! That gives them a clear boundary in language that they might understand.

I understand that a going rate is something like £100 a day to be 'primary' on call and £50 a day to be secondary (ie the expert) whether or not you get a call - then there's a flat fee for the first 2 hrs (even if it takes 2 mins) and then chargeable at normal hourly rates.

Wow, that's a lot of money considering I've effectively been 'on call' for six weeks without charging them anything! I don't think they'd pay that. But if they paid something however little, it might change their mindset so that they realise that I'm not an employee. Except if I go on PAYE I guess I will be an employee - but I'll have other clients to look after and I don't want them thinking 'if anything comes up, she's on the mobile' as a default.

THat's IT contracting rates... I'm sure it varies depending what type of work it is.

I would definately consider incorporating, but there are a few practical issues I am going to mention - I hope your own accountant will say the same, so this is mainly for other people reading.

First let's deal with limited liability - yes operating as a Ltd Co will prevent clients suing you and coming after your home, but your contracts should have a limitation of liability clause which matches your Professional Indemnity Insurance cap anyway. If that is not the case you should consider how you have got into this situation and whether there are any other gaps in your business model.

Next the idea of operating through your husbands company - possible but likely to be a bad idea. Unless that company was set up with this in mind it is likely to require a capital restructre. Also it is likely to be sub-optimal for VAT if your combined turnover is over £150k or you are coincidentally using the same fixed rate scheme. Insurance will also be more complicated unless again both your lines of work can be included in a single policy. It is also going to be a lot more complicated if one of the business, or your marriage, fails. You would probably save some accounting fees though.

Next IR35. If you read the HMRC guidance you are likely to come to the conclusion that you will have to pay additional tax on the work from this company if you operate as a Limited Company. That's what HMRC think, but they have been hugely unsuccessful in enforcing their opinion on taxpayers. I would advise any client operating in an area where IR35 is an issue to ensure that they have minimised the risk of a successful challenge from HMRC by taking specific advice from a professional experienced in this area - I subcontract this work to a leading specialst firm, or if you join the Professional Contractors Group you can get advice from the same specialist at the same rates, plus other membership benefits. If your existing accountant is not well experienced in freelancers/IR35 you need to talk to her to ensure that she is going to be able to give you the advice and support you need.

I have seen a number of people go from working successfully as a freelancer with one big client to being an employee of that client (and even done it myself in the past): it can work well but IME only if you really want to work solely as an employee, and if this is an employer you really want to work for - it sounds like both of these are a "no" for you at the moment. If this leads to you falling apart, it can actually work well for you to be able to say to new clients "they wanted to take me on as a full time employee but I didn't want that because I think I work best as a consultant, and [if you want to lay it on thick] I wanted to be able to work with other great companies in the sector like you..."

Finally I've got to take issue with a couple of specific points:

I wouldn't have thought that having a few long term clients would be a problem
It certainly would be - if more than 50% of your income in a 12 month period comes from one client HMRC are likely to start from the position that this income falls within IR35.

it's also perfeectly legitimate for a company to have more than one line of business, as long as the memorandum and articles permit it
... but if a company starts a new line of business after a change of ownership (which is likey to be triggered by issuing new shares) there may be tax complications which will require additional accounting fees to resolve, even if just to ensure they don't apply.

...and probably sell you an off the shelf company too, although the Companies House webiste has instructions on setting up your own company for next to nothing.
Neither of these are the best way to acquire a company in most cases - an incorporation agent will set a new one up for you for peanuts: it actually takes longer and costs more to transfer a shelf company than it does to incorporate a new one. Talk to your accountant, but google "company formations" to get an idea of how much you should be paying first.

"and a set of annual accounts to Companies House and HMRC - both can be done online, and require little accounting knowledge"
Although this is possibly true in theory, in practice I disagree. In April 2011 HMRC introduced a new regime which requires submission of accounts in a format called iXBRL. The software that accountants use has been updated to do this, but if you don't have an accountant you have to use the system that HMRC provide. This system is IMHO (and every other commentator's HO too) unusable - I struggled to make a successful return for a small company with it and I'm an accountant and an IT expert. You can buy commercial software to do this, but it costs about as much as you will pay to an accountant to do the whole thing and has a formidible learning curve for a non-accountant. Also, although you might be able to produce a set of accounts in the required format I doubt that they would actually comply with the Companies Act - in particular I have never seen a set of 'home made' accounts that include compliant Related Party Transactions or Ultimate Controlling Party notes, and the Accounting Policies note is often inappropriate for the company.

MrAnchovy Thank you so much. While of course I always talk to my own accountant about my business I find your insights on this board tremendously helpful. It's very good of you to share this information.

Yes, more than 50% of my income in a 12 month period would come from one client... Thank you for the 'heads up' on the limitation of liability clause - I will double check my contracts. I don't own a home and have virtually no assets but if someone came after me for losses incurred it would be terrifying. I am not one of life's risk-takers!

Having thought it over I am going to do the next contract with this client as PAYE, to be on the safe side. In the meantime I'll schedule a meeting with my contact and discuss the boundaries. Because even on PAYE my pay has been pro-rata'd down to take account of my only doing 3 days a week (2 days a week I'll be working as self-employed elsewhere). ATM I think they'll assume that they can call me anytime on those two other days and on the days where I'm taking unpaid leave to work elsewhere. So I need to put a firm 'no' in place in advance.