If you’re anything like me, your primary focus is on doing your job whilst giving cursory attention to the back-end stuff like making sure your tax, legal and commercial affairs are in order.
When I first went freelance as a marketing consultant about nine years ago, the first and probably the only thing on my mind was, “where is my next assignment going to come from?”
Somewhere in between finding new clients and keeping existing ones happy, I remembered to tell HMRC I was now self-employed (I think a friend told me to do that) and I found an accountant in the Yellow Pages.
I told my accountant I was a freelancer. He told me that the government doesn’t have a category for ‘freelance’, only employed or self-employed. OK, said I.
“You’re probably best off as a sole-trader,” he said. Again, I agreed. Should I perhaps have incorporated as a limited company instead? I didn’t have too much time on my hands to delve deeply into that matter, and I didn’t really know where to look. I asked him a few questions, very much in lay-speak. Given that I’m not a figures person, some of his answers made me dizzy.
He muttered something about employment status, and that I needed to let him know if I only had one client, as that could cause some issue.
Basically I trusted him to sort it all out, so I could get on with delivering the goods to my clients. And that’s what I carried on doing for quite a while, spurred on by the fact that clients liked what I was doing.
Ignorance is anything but bliss if you are called to account. HMRC puts the onus of responsibility on the individual. Even if you have good advisers, you must understand the implications of the advice, as the buck ultimately stops with you.
PCG is the not-for-profit organisation that fights the freelance corner by lobbying government for better tax and regulation and promoting fair and ethical behaviour among recruiters. It also provides a host of tools and knowledge to its members to help them handle tax and regulatory matters properly.
Since becoming a PCG member I’ve learnt, for example, that HMRC (aka the taxman) conducts investigations on both freelancers and companies. Sometimes these are random investigations, other times they can be triggered by something you unwittingly do. People have claimed that asking an innocent question as a layperson has led HMRC to investigate them as a result of a misinterpretation. Those who have endured an investigation tend to describe them as time-consuming, stressful and even traumatic experiences. The stakes can sometimes be alarmingly high – in 2008 a freelance consultant was given a tax bill for £99,000 after HMRC disputed his tax returns going back several years. To put this figure into context, the consultant in question was only earning an average day rate in the £350-£500 range. I can’t even begin to contemplate what I would do if that happened to me.
As the person reading this, you may be freelance already, either operating as a sole trader, or even a partnership or limited company. Equally, you might be considering the step into freelancing. Either way, if any of the above is new to you, I think it’s worth prioritising some time out of your schedule to review where you stand in relation to these ‘back-end’ issues.
Advice from HMRC can be found at www.hmrc.gov.uk/selfemployed. This will talk you through the process of registering as self-employed and whether you need to register for VAT.
PCG publishes a wealth of free information at www.pcg.org.uk, including the Guide to Freelancing. This will give you independent advice on the routes available to you and includes explanations about IR35 and employment status.
Also, if you decide to become a member of PCG you can phone their tax and legal help-lines any time you receive a worrying communication from HMRC, or if there is something you don’t understand. This provides you with an impartial second opinion and avoids you unwittingly responding to the tax authorities in a way that could make your life a misery.
PCG also provides expert advisers to represent members unfortunate enough to suffer a tax investigation, thus massively increasing your chances of a successful outcome. So far PCG’s advisers have won 1,462 cases against HMRC and lost only six. In certain circumstances PCG will fight the case all the way to the House of Lords if necessary, as they did for Geoff and Diana Jones of Arctic Systems Ltd. That victory helped create a body of case law which essentially spared hundreds of thousands of freelancers around the country from having to cough up thousands in extra tax.
By Charlie Bradburn at the PCG
Image by g-na
