Should freelancers be treated as self-employed or employed?

Do you pay people who are not on your payroll?  If so, there is always a risk HMRC (and employment tribunals) could classify them as employees.

The rules on when someone is an employee often misunderstood. It is not a “worker decides” choice, and there is no relevance that the individual have registered as self-employed or has other clients.

You should review all freelancers based on the following rules that define employment:

1. The company directors impose a degree of supervision and control: This is true in many scenarios, particularly if there are any health and safety regulations that apply to your business.
2. The same individual must always do the work: This is often necessary as you wouldn’t want someone else just turning up saying they are the individual’s sister/friend etc.
3. There is an ongoing relationship: This is the case if the same person is paid multiple times.

The latest iteration of HMRC’s Check Employment Status for Tax (CEST) tool has been unveiled.  In marginal cases businesses are advised to employ CEST alongside exercising their discretion.

Getting employment status wrong can be extremely costly. HMRC will charge the “employer” the national insurance (employees and employers), PAYE income tax, penalties and interest if they find you have paid someone on a self-employed or freelance basis when they should have been on payroll.

Contact us to discuss this further.