2. HMRC approach
• Employment status of freelancers is a key area for HMRC
• HMRC intends to refocus efforts on employer compliance
to raise additional tax revenue
• Good time for end users to review existing arrangements
3. Engaging a freelancer directly
• Deciding a freelancer’s employment status is not straightforward:
Conflicting case law
HMRC guidance
Special rules for “behind the camera” and “front of camera”
workers
• If HMRC consider a freelancer is an employee:
Employer is liable for PAYE/NIC
Arrears for 4 years unless employer careless in which case
period is extended to 6 years
Interest and penalties
But able to offset any income tax and Class 2/Class 4 NIC paid
by the freelancer
• Employment law risk
4. Engaging a freelancer via a PSC
• End users can generally protect themselves from
PAYE/NIC liability by engaging a freelancer via a PSC
• If IR35 applies the PSC rather than end user becomes
liable for PAYE/NIC on fees received less certain statutory
deductions and allowances
• Government has abandoned the proposal under which
end-users would have been liable to operate PAYE and
pay employer NIC where “controlling persons” provide
services via a PSC
5. Engaging a freelancer via a PSC
• From 6 April 2013 IR35 applies if:
Ignoring the existence of the PSC the freelancer would be an
employee of the end user
Ignoring the existence of the PSC the freelancer would be an
officeholder of the end user
The freelancer is an office-holder and provides services
related to that office through the PSC
• New HMRC approach to IR35 investigations
6. Engaging a freelancer via a PSC
• Important to ensure that arrangements are robust
Valid contract between the end user and PSC
Contract is one of self-employment
• Points to watch:
Does the PSC have a presence in the UK – if not end user
may be liable to operate PAYE if the freelancer works under
their direction and control?
Is the PSC a managed service company?
Is the freelancer a “worker” for the purposes of the WTR and
auto-enrolment?
7. Engaging a freelancer via a third party
intermediary
• Ensure third party intermediary (eg umbrella company or
agency) operates PAYE and NIC
• Beware offshore umbrella companies
