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Thread: Freelancing and tax liabilities...

  1. #1

    Freelancing and tax liabilities...

    My wife is looking into some freelance work with a company and reviewing the contract they have sent. They've advised that a clause in their contract passing all potential tax risk on to her is commonplace in the freelance market - does anyone have any experience of similar clauses or otherwise?

    I'm concerned because I understand that if HMRC were to investigate the company and determine that she should be classed an employee rather than a freelancer, it would leave her liable not only for her personal tax and national insurance contributions, but also for employers national insurance contributions - this would include the 13% employer's NI as well as the 2% difference between employee NI (self employed 9% vs employed 11%). Clause 1.2.2 below.

    1. Tax Liabilities
    1.1 The Consultant warrants and represents to the Company that he is an independent contractor of self-employed status.
    1.2 The Consultant undertakes to the Company that he will:
    1.2.1 pay all tax and National Insurance contributions in relation to payments made to him by the Company pursuant to this Agreement; and
    1.2.2 indemnify the Company in respect of any claims that may be made by the relevant authorities against the Company in respect of tax, National Insurance or similar contributions relating to the Consulting Services.

    She has taken advice from her cousin, who is a partner in a firm specialising in corporate tax issues, but was wondering if anyone her had experience of freelancing and situations such as this?

    Thanks for any info you may be able to provide.

  2. #2
    Master blackal's Avatar
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    It's IR35 rules

    She should seek professional advice, which may advise using an umberella company (not without its own pitfalls) - but all tax investigation is on cost/benefit - so there could be many bigger fish for HMRC to pursue.

  3. #3
    Master draftsmann's Avatar
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    What is the nature of the work to be carried out?
    At what level of seniority/specialism/expertise/autonomy?
    Is she at liberty to decide how, where, when she carries out the work?
    Would she use her own equipment/materials or those supplied by the engaging client?
    Would she be responsible for rectifying any errors she makes at her own expense/in her own time?
    Is she responsible for taking out her own professional indemnity insurance?
    Would she be able to appoint a substitute to carry out some or all of the work?

    The answers to questions like these will determine whether the relationship really is of a business-to-business nature or if it is really an employment disguised as self-employment.

    If the latter and the engaging client is in the UK it is likely that HMRC would pursue the engager for PAYE/NICs. If the engager is outside the UK she is exposed.

    Yes, this is an area I'm professionally involved with; but the above comments are of a generic nature and should not be taken as definitive advice applicable to any particular person's circumstances.

  4. #4
    Master
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    This is perfectly normal. If the company are engaging her as a freelancer (either self employed or via a Personal Service Company) they would want to make sure they have no tax liabilities for her 'employment'

    If she is providing services in the public sector the end client would determine her status. In the private sector she would determine this herself.

    Taking this test might help

    https://www.gov.uk/guidance/check-em...status-for-tax

  5. #5
    Master
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    Freelancing and tax liabilities...

    PS there is some very good guidance and FAQ on http://contractoruk.com

  6. #6
    Craftsman
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    I do some freelance work and in my experience this clause is quite typical. Nothing to worry about IMHO if she's sure she is a contractor and not a hidden employee.

  7. #7
    If she can take another contract with another company, even if it is small, it would go
    a long way to counter against ir35 as you are clearly not bound to one company. Contract wording is key and there are companies out there, that can ensure your wording is compliant.

  8. #8
    Master
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    Quote Originally Posted by langdalematt View Post
    If she can take another contract with another company, even if it is small, it would go
    a long way to counter against ir35 as you are clearly not bound to one company. Contract wording is key and there are companies out there, that can ensure your wording is compliant.
    I'd argue that another gig would go a long way, it is not unhelpful - but each assignment is judged. Eg your engagements can be in and outside of IR35 at the same time.

    Contract wording is important, but ultimately actual working practices trump the contract in every investigation.

  9. #9
    Thanks all for you responses so far - much appreciated...

  10. #10
    Master draftsmann's Avatar
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    Quote Originally Posted by Chalet View Post
    I'd argue that another gig would go a long way, it is not unhelpful - but each assignment is judged. Eg your engagements can be in and outside of IR35 at the same time.

    Contract wording is important, but ultimately actual working practices trump the contract in every investigation.
    Correct.

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