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A Tax question regarding Freelancers

Discussion in 'General Business Forum:' started by Russell, Jan 9, 2009.

  1. Russell

    Russell Member

    Right then I've got a bit of a legal/ tax question that I've been trying to find the answer to, so I'm wondering if you lot can shed some light. I' m working as a freelancer so registered as a sole trader but get quite a lot of my work from regular clients.

    At the moment I have an ongoing appointment working in house with a client 2 days a week. It's not an official contract just they offer me regular work I give them first refusal on my availability. I read somewhere a while back that if (as a sole trader) you work over a certain amount for one client during the tax year, good old Mr tax man could argue that this classes as part time employment. Therefore you will have to go through the PAYE system and the company you do work for are liable for some of your tax and national insurance payments. This is obviously something I don't want to land on my client.

    Does anyone know what the official line on this is? I believe it has come about as a consequence of some amendments in the law meant to protect casual/ temp workers.

    I know a way round it is to set up as a Ltd company rather than be reg'ed as a sole trader, but having just got my head round my own taxes etc I don't particularly want to set up as Ltd at the moment.

    Any advice or links on this matter would be grand

  2. Greg

    Greg Active Member

    Interesting question Russell, and one I would also be interested in seeing response to, as looking like I'll be in a similar situation with one of my clients this year, but I don't work in-house for them if that makes any difference, just on a remote basis.
  3. tbwcf

    tbwcf Active Member

    My understanding is that this is only an issue if you work for one client only. Although I don't know if there is a fresh hold like if over 90% is for one client you should be employed by them.

    As long as you have a few invoices to other clients I wouldn't worry. Put it like this at my last job we had an account handler who was self employed he put work through us and we invoiced the client and gave him his cut. He kept one of his many clients as a personal client whom he would invoice so effectively he invoiced us and client B. I would say that client he invoiced himself probable accounted for no more than 20 % of the work at most & his wife was an accountant so would know the ins & outs.

    Becoming a limited company has many shortfalls to sole trader unless you are consistantly invoicing a minimum of around £1300 per month, then they become about even (this advice was from an accountant before I became a sole trader) that's the point when the two could even out cost wise. If you are ltd an account would charge around £800 per year rather than £250 ish to a freelance designer, then you have the costs of registering the company, paying corporation tax etc.

    I think if you became ltd you would really need to hire an accountant.

    I hope that helps, if not perhaps get in touch with one and ask what they would charge for advice?
  4. tim

    tim Senior Member

    Yeah I'm in a similar situation.
  5. tbwcf

    tbwcf Active Member

    In fact scrap the "ask an accountant how much" bit. - A friend of mine became fully qualified as a CA (Chartered Account) last year and is assistant manager at his firm now so if your still concerened / unsure pm me your questions and I'll ask his advice for you... (within reason - obviously I can't ask him for all 300 ish members)
  6. Greg

    Greg Active Member

    Thanks for the reply and advice tbwcf, sounds like it shouldn't be too much of a concern then.
  7. David

    David New Member

    You're fine, unless he's your only client - the law you're thinking of is to combat 'disguied employment' where an employer never officially hires someone and uses them soley on a contract basis - what you're doing is staple freelance retainer stuff.
  8. tbwcf

    tbwcf Active Member

    That's absolutely right
  9. Greg

    Greg Active Member

    Thanks guys, useful to know :up:
  10. Russell

    Russell Member

    Thanks for the info guys, thought it seemed a bit odd perhaps what I had read related specifically to long term 5 days a week, freelance or temp to perm type situations. I've got my client base spread across a fair few clients so that's put my mind at rest.

  11. tbwcf

    tbwcf Active Member

    No problem - glad we could help!
  12. James Smith

    James Smith Junior Member


    Greg asked me to drop by and help with your question. As background I am a chartered accountant working with small businesses and a regular one some other small business forums.

    The reason you personally don’t have a thing to worry about is that you are self employed. If you where seen as an employee then it would be the company you are contracting to that would have the issue not yourself, that is to say its their responsibility to get your status correct and pay over any additional taxes as an employer that could become due.

    If however you where trading through a limited company (and this is certainly not something you do without proper advice) then a nasty bit of legislation called “IR35” would apply which gives various tests as to whether or not your contract is “disguised employment” or not.

    It is quite possible to fall foul of IR35 even with 2 days a week if its regular and long term (eg several years) but its generally used to attack instances where one person works full time for one company for long periods of time (over 12 months). It certainly helps a lot having several clients but it is not a “golden bullet” absolving those working through limited companies from IR35 issues. Key issues are substitution and control, eg if you can subcontract the work or send someone else in your place to do it. That is a key test of whether a company is employed or an individual. As I say however this ONLY applies to those working via ltd companies and NOT those working simply as self employed individuals.


    James Smith
  13. Greg

    Greg Active Member

    HI James,

    Thanks very much for dropping in to post that, it's greatly appreciated!!
    Useful to know the outline differences between Sole Trader & Ltd. Companies when it comes to this issue.

  14. Russell

    Russell Member

    Yep cheers for that James, heard a bit about IR35 problems before. I'm quite happy as a sole trader so that's cleared things up nicely.

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