Everyone’s a freelancer?

[chattypattee]

DH has just been offered a job with a great firm and salary 🎉 (he works in finance).
But he’s been told that everyone on the team is hired as a freelancer through their own limited company.

I’ve never heard of this before and it sounds a bit dodgy to me.
Has anyone been in this situation before? What are the benefits to him?

He could potentially pay less tax. But IR35 is likely to put a stop to that soon.

He'll have no employment rights, no pension, no paid holiday, and potentially not be making enough NI contributions to claim state pension.

It's a minefield that he should avoid.

If he goes for it he'll need ensure he has decent insurance because he could potentially be liable for any mistakes he makes at work.

So if he took holiday it would be unpaid?
And what do you mean by “no employment rights”?

@chattypattee

So if he took holiday it would be unpaid? And what do you mean by “no employment rights”?

He would not be an employee. He would be legally self-employed. So he would have none of the legal protections against e.g. unfair dismissal that employees have.

It sounds like a scam or at best a pushing of the rules and I would avoid.

I would avoid this if possible.

He won't be entitled to any paid time off. He would need to save up himself to cover off any sickness or holiday leave he would need. He would also have few legal protections from things like unfair dismissal

And yes, any holiday would be unpaid. Contractors are typically paid significantly more as a compensation for the greater instability and the potential for periods of zero pay. So unless it's really a lot more than he is earning in an employed role, don't get too excited about the "salary". You need to calculate what it would be equivalent to as a permanent employee, as well as figure out if he is OK with the risks. It may well be not as good a deal as it "looks", even if the company is on the straight and narrow legally.

It's a way for companies to avoid paying tax and NI. It's also very sketchy with IR35 rules and he'd need to be 'earning' approx 2.5x the 'salary' amount per hour to account for his own holiday/sickness/pension not to mention being registered for VAT over a certain hidden threshold, indemnity insurance and regular accounts and company returns.

I'd definitely look into the tax position of this because some companies have done this as tax avoidance/evasion and it's always the employees who aren't employees who get stuck in hot water.

As a freelancer/contractor your husband's pay would be the sum total of his employment benefits. No sick pay (SSP via government only), no holiday pay, no pension contributions, he'd be responsible for paying his own tax, no redundancy pay, possibly no decent notice for the end of contract. He'd essentially be self employed working under the limitations placed on him by a company.

It's not an evil business practice as such, contractors are generally very well paid so they can make all of the above contributions for themselves but that the company only ever "employs" people on this basis doesn't sound great to be honest. Most companies have a mix of employees/contractors.

I wouldn't turn down the job, but I'd be speaking with an independent accountant about the legitimacy of the terms/pay/tax etc before accepting.

Ignorance of the rules is never a defence with HMRC.

I worked in the basis for a few years.

The salary was really great, even when I accounted for paying my own tax and NI
But, every day off was unpaid, so a 2 week holiday cost me over a £1k before I’d even left the house. So I hardly ever took any time off, even when I was ill.
I was on a 12 month rolling contract which they told me they weren’t going to renew with less than a weeks notice.

I’d think really careful about taking it on.

I see - so any days taken off as sick/holiday would be subtracted from his salary?

He mentioned the company having its own accountant that could help, but he should still seek guidance from an independent accountant right?

Look at the figures but assuming he is paid appropriately it wouldn’t put me off.

It’s important to remember the higher pay comes to offset risk from the employer to the worker, and to keep a safety net for potential gaps between contracts or under employment, and budgeting for leave, sickness, etc.

If you're in the UK this won't get past the IR35 rules. All the contractors in finance have had to be taken on as employees, except in very rare cases. All the big banks aren't employing people this way any more, they're all having to be PAYE. When the IR35 declaration was the responsibility of the contractor, you also couldn't work for the same firm for more than 2 years without being made an employee, unless you took 6 months off then came back. Contractors don't get paid a salary either, it's usually a day rate or a price for a job.

If he’s self employed he won’t have a salary. He’d have to invoice the company and wait for them to pay it. In effect you are a supplier to the business like the stationery or whatever, it’s just you’re supplying the work. It sounds dodgy and IR35 is coming in to effect in a few weeks so I would suggest that he considers this as risky.

This is likely to be illegal from 1st April. Google IR35

Definitely talk to an accountant. Rules are coming into place in April that make this kind of thing illegal and worst case scenario he could end up being taxed like an employee with zero employee benefits, so lose-lose. Look up “IR35”.

My dad did this but in IT. He was paid much more than a paye job but was very organised - had an accountant and had to submit tax return etc. He did it for years until he retired so it's not a new thing. Check tax and national insurance as I'm sure my dad mentioned having to pay twice as an employee and technically as an employer (of himself). It may have changed now but look into it and budget carefully

Is a contractor different to a freelancer? I had a quick look online and couldn’t really tell the difference

I also looked up IR35 thanks everyone. DH would be likely to start before April 6th so would IR35 nullify this “everyone’s a freelancer” schtick or would it still apply if from the previous tax year?

IR35 means, I think, that if you are a freelancer/contractor then you need more than one client. So he couldn't only do work for this one company in a tax year; he'd need to take on other clients too.

IR35 applies to all payments made after 1 April. So if he’s paid monthly then March might not be affected but all his other payments would be.

IR35 means, I think, that if you are a freelancer/contractor then you need more than one client. So he couldn't only do work for this one company in a tax year; he'd need to take on other clients too.*

It’s more complicated than this. Essentially if he’s acting like an employee, he should be taxed as one. You can check his expected working pattern here: www.gov.uk/guidance/check-employment-status-for-tax

And yes OP, in this scenario contractor/freelancer/self-employed are all the same - all non employee “off payroll”.

IR35 basically means that his employers would have to deduct income tax from his salary.

He'd still need to do a tax return but it means that it'd be significantly more awkward and difficult for him to make and tax benefit from being freelance. It will apply to everyone regardless of when they joined.

Contractor and freelance are pretty much the same thing.

I decided to do to freelance from payee. It more than doubled my salary BUT I don't get paid holiday, sick, maternity, or have any security. It worked for me because we can live of my husbands salary.

I do find that I barely take any holiday because taking a day off costs me.

It's very dodgy, because unless it's a time-limited contract, freelancers are expected to work (or be available to work) with more than one employer - if you're only working for ONE employer, the govt/HMRC will see this as 'in reality' an employee/employer situation and will see the pretence of 'freelancing' as a tax evasion scheme.

Some people refer to employees on fixed term contracts for 6 or 12 months as contractors, or it is also used by some to describe non employees such as self employed freelancers.

IR 35 came in to close tax loopholes and to address some of the issues of the gig economy. Basically you can’t just label someone as a freelancer, the work that they do and how much the employer controls how they work, how much they work for that one employer and other criteria will determine whether someone should be an employee on payroll with a salary and Tax/NI etc or can be seen as genuinely a freelancer. This is what the Uber drivers and similar are in court about, they want to be employees so they get employment rights like paid holiday.

Most companies in my industry have taken a blanket decision that everyone is an employee, so even though I have more than one client, and I have professional indemnity insurance, have paid for licenses for software, I'm still be treated as an employee because they don't want to take the chance with HMRC deeming me an employee if they don't. It's costing me over 5k pa

Don't do it - this would fall foul of IR35.

I am a freelancer (managing 5 clients at any one time) and you've got to have:

• insurance in place,
• a contract in place (including all the "what if" scenario's)
• and a set of accounts for tax purposes.

I love what I do and I "budget" for sick pay and time off as part of my hourly rate, along with tax, NI and a pension. Being a freelancer gives you the freedom and flexibility to say "I am taking time off for that holiday/school play/house sale". The flip side is that you are responsible for admin, finance, marketing and everything else that goes with running a business. If his new company expect regular hours and attendance with no recourse to employee benefits, they are trying to dodge tax at his expense.

@Sunbeam18

IR35 means, I think, that if you are a freelancer/contractor then you need more than one client. So he couldn't only do work for this one company in a tax year; he'd need to take on other clients too.

It is a bit more complicated than that, although having more than 1 client helps. The main thing is substitution, could he send someone in his place to do the work? There is a checker on the HMRC website as well. The issue with IR35 is that it gives you all the responsibilities of being employed without the benefits, it’s pretty shit really It’s highly unlikely your DH is legitimately freelance but unfortunately if he doesn’t take the job someone will. The good news is that I believe from April the onus is on the employer to prove the status and it’s their responsibility if HMRC don’t agree. I would also question the knowledge of an Accountant who thinks this set up is legitimate.