Empowering the Freelance Economy

Freelancers: How to Navigate the Murky Waters of Employment Status in the UK

Freelancers often have to navigate the murky waters of freelancing and can get caught out/ Photo by Vincent Albos
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Freelance Informer readers are increasingly frustrated about how their working status is never quite clear-cut with clients or the tax man. We turn to Seb Maley of contractor insurer Qdos to get some clarity for readers about the murky waters of worker status in the freelance economy

Navigating your working status as a freelancer, gig worker or contractor in the UK is unnecessarily complicated and opaque. If only there were two statuses, employed and self-employed we wouldn’t be in this quagmire. However, if you know how to work the system to ensure you do not get caught out by incorrect working practices often initiated by clients, you can avoid being hit with a large retrospective tax bill from HMRC or get the employment rights you deserve.

In simple terms, here are some definitions to demarcate the difference between independent freelancers, contractors and gig workers.

  • Freelancers are self-employed individuals who set their own working hours and rates. They are responsible for their own taxes and National Insurance contributions.
  • Contractors can be self-employed or employees. Self-employed contractors have the same responsibilities as freelancers. Employed contractors have the same employment status as regular employees.

But then there’s the very opaque “worker” status. This is where things again can get confusing, especially when clients are not classifying the role correctly.

While complex in many ways, the tax system is binary – you’re either self-employed or employed for tax purposes. Whereas, rather confusingly, when it comes to employment status, you can be self-employed, employed or, often in the gig economy, a worker – the latter of which you’ll receive employment rights but pay taxes via the self-assessment like a self-employed individual.

Seb Maley, CEO of Qdos

Q: What criteria would you be a “worker”? What tax code do you then fall into? What taxes are you responsible for? What state benefits do you get?

SM: Workers are determined by numerous factors, but typically, in the gig economy, this is dictated by whether or not they are controlled by their engager. For instance, are they instructed to accept certain jobs at certain rates?

A worker sits somewhere in between employment and self-employment. In the eyes of employment law, workers receive statutory employment rights – like minimum wage, holiday pay and pension contributions – but when it comes to tax status, remain self-employed. As a result, they’re still required to complete self-assessment tax returns annually, like any other self-employed worker. 

Q: What criteria would you be self-employed? What taxes are you responsible for? What state benefits do you get?

SM: In contrast, self-employed workers should have control over how they provide their services – whether that’s where they work from, the hours they decide to work and how much they charge. A key characteristic of true self-employed status is having the right to turn down work as and when they want.

Q: What criteria would you be an employee? What taxes are you responsible for? What basic state and employee benefits do you get?

SM: Employees provide a contract of service to their employers. They are typically subject to control, are obliged to accept the work handed out to them by their employer and are expected to carry out this work personally – as opposed to being able to subcontract out the services in the way that genuinely self-employed workers often can.

Q: For example, I can easily see that many non-umbrella freelancers will be considered workers but are not getting any benefits like sick or holiday pay. If so, what tax rate and different taxes  (NI, Employer’s Insurance Apprentice Levy) do they pay? 

SM: While complex in many ways, the tax system is binary – you’re either self-employed or employed for tax purposes. Whereas, rather confusingly, when it comes to employment status, you can be self-employed, employed or, often in the gig economy, a worker – the latter of which you’ll receive employment rights but pay taxes via the self-assessment like a self-employed individual.

Q: I have a feeling many self-employed people will be beholden to client/publisher rates and with no benefits. Again, murky territory. If you seem to be not getting what you should in terms of benefits how do you go about asking for it to a client? And when is it worth staying with a client and when is it better to leave if you feel you are in murky territory?

SM: There’s not necessarily a set way of requesting to become a worker. Naturally, there’s case law that many people can point to, but the reality is that it’s not the easiest of topics to articulate clearly and navigate to clients. Beyond that – and if you believe you have a strong enough case but your engager disagrees – employment tribunals are a common route, where the factors will be reviewed by an impartial judge.

Do you have concerns or questions related to your freelance career, IR35, taxes, career tips or recruitment, write to editor@freelanceinformer.com and we will aim to find an expert to address your questions

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