Arguments over who is or isn’t an employee and what rights people should have in the gig economy have been raging all year. Every court case seems to blur the lines between the self-employed, workers and employees.
Gig Work, Freelancing & The Impact On Employers…
Whilst the political battles continue over whether the gig economy is “flexploitation” and big corporations using employment law and tax loopholes, the reality is that a more flexible approach to working hours is becoming popular.
The Office of National Statistics says that in 2015, out of a total workforce of more than 31 million in the UK, 800,000 were on zero hours contracts and nearly two million people were freelancing.
It’s important for employers, employees and freelancers to understand where they stand, particularly surrounding IR35 regulations, or risk fines from HMRC.
What’s the difference between the self-employed, workers and employees?
The wording and content of a contract are crucial but from HMRC’s perspective, the actual performance is equally as important. A self-employed freelancer, or contractor, has a contract for services, whereas an employee will have a contract of services, or an employment contract.
- A freelancer is committed to delivering an outcome for the contractee, whether in services or delivered goods, and usually to a deadline. How they do it, what tools they use and who actually carries out the work, is down to the contractor.
- While a self-employed contractor has greater freedom, for example to work for other employers, they have to provide their own equipment and miss out on employment rights such as a workplace pension, holiday and sick pay, maternity and paternity rights and redundancy pay-outs.
- An employment contract names a specific person to carry out a role. They can’t be substituted and the contractee dictates how, where, when and for how long they perform a service. A zero-hours worker is also an employee, but their contract does not specify set hours of work. However, they still have rights and obligations like any other employee.
The grey area between the self-employed and the employed…
Once an employer requires a particular contractor to be on site and asks them to work set hours to the exclusion of other contracts, gives them an office or tools for the job and controls their activities, then they start to look like an employee, with the employment rights and tax implications this brings.
- If you’re an employee, you don’t have to worry about bookkeeping unless you have sources of income in addition to your salary, for example a buy-to-let property, bank interest, or shares, because your employer will deduct and pay income tax and National Insurance from your wages.
- However, self-employed freelancers are responsible for making their own tax and national insurance contributions. We advise clients to put aside a percentage from each settled invoice to cover the tax bill they receive twice a year from HMRC.
- Generally, for a given earnings level; a self-employed individual will pay less tax, so take home more income. (If they have a good accountant! There are many ways to ensure you are only paying the amount of tax you need to. For example, by using the right business structure, tax planning, investments and pensions.)
- We also offer book keeping services to make sure clients record all allowable business expenses to offset profits and free up their time so they can focus on what they so best – their business!
- If you’re self-employed, you should also consider a personal pension, the most tax-efficient way of planning for the future.
The Uber effect
Disruptive business models, as used by Uber, have unlocked the employment market for many workers and things will never be the same again. In fact, the research company Gartner predicts that by 2020, 30% of the UK workforce will be freelancing.
The Government, HMRC and legislators who make decisions, for example, on statutory benefits, will have to adapt the employment framework to be more flexible. In the meantime, Black and White Accounting are here to help.
Business advice and accounting services in Hampshire and Surrey for Self-employed, Workers and Employees
At Black and White we help businesses and individuals of all sizes to plan financially for the future, keep on top of their accounts and pay only the tax they need to.
We are specialists in self-assessment returns, income tax, corporation tax and VAT, so will ensure you get the support you need. Call us now on 0800 140 4644 for a free initial consultation or send us your enquiry here.