How do I pay tax as a self employed freelancer?

Last updated: 27 Feb 2020

Freelance employment status and IR35

Bectu members are still seeking advice from the union on their freelance status, as conversations with engagers about future contracts step up. A change in tax law on 6th April 2020 has led all companies who use members working through personal service companies, as well as self-employed sole traders, to carefully scrutinise whether or not the workers they engage are direct employees, rather than freelancers.

Bectu Sector of Prospect has run a series of meetings for members across the UK to explain the new regime, and has emphasised that there will be no change in the tests used to determine whether a worker is self-employed; the only change is that from April the liability for any unpaid employment tax will fall on the engager where workers provide services through their own limited companies.

Self-employed sole traders, who are not directly affected by the new rules, are now routinely being checked as well by engagers who have introduced robust systems to examine employment status.

There are already concerns that some companies are “sheep-dipping” their freelance workers, instead of examining each individual relationship, with the result that groups of freelancers are put on PAYE, even though they are clearly self-employed. In the film and TV sector HMRC has re-issued its list of workers in grades which should normally be treated as self-employed, which covers many, but by no means all, BECTU members.

The union is still engaged in discussions with HMRC about extending the list further, and it is possible that a further revision may be done by HMRC by May this year. Members who are not on the list can apply to HMRC for a so-called “Lorimer letter”,  which assures engagers that they are self-employed, but will need to demonstrate that they have worked for at least 10 engagers, each for less than 10 days, in the previous year.

Many companies are using the HMRC online status checker to identify workers who may actually be their employees, but this can give the wrong answer, and sometimes no answer, and, in Bectu’s view, is flawed in its test for the right to substitute  labour. HMRC’s list of grades for film and TV is available for download as a pdf here. It needs to be read in conjunction with the HMRC Employment Status Manual.

Some engagers have wrongly assumed that film and TV workers who are not on the list are automatically employees, which conflicts with HMRC’s own advice. Members have been advised by Bectu that if an engager offers work on a PAYE basis, and refuses to accept self-employed status, there is little that can be done except to attempt a negotiation, and if appropriate, decline the offer of work.

Full tax guide available to members

Bectu has re-issued its Tax for Freelancers Guide, which can be accessed here with a members’ login, and it now contains detailed information on the steps to take if a worker is wrongly categorised as being an employee.

Join us to access this and personalised help on tax, as well as to find out about meetings for members.

New freelance rights to information about engagements

From April 6th freelance members who qualify as “workers”, but remain self-employed, will have a new right to be given a written “statement of initial employment particulars”, on the first day of any engagement. Among the details to be included by engagers are normal days and hours of work, information on whether or not the hours can be varied, and any entitlement to paid benefits like holiday pay . Many Bectu members have “worker” rights, one of which is holiday pay, so any who receive this will be entitled to written particulars.

Employed members already have the right to written particulars, but can currently wait up to two months to receive them, whereas the new rules entitle them to receive the document on day one of employment.