Contractor advice

lesuck

Hi all,

I’m looking for some advice on my current work situation. 

I am have been a freelancer since the start of 2018, and in the first two years I worked for different companies, each for a few months at a time. 

Since late 2021 I have been working solely for a company that some ex coworkers started up. I have been working with them solely for two and a half years now.

I am starting to worry that this situation may actually be a disguised employment situation, and not entirely legal, and that I may be liable for some kind of penalty. The reason the contract has gone on for so long is there has been a particular project I have been working on which I have a lot of knowledge on that requires me to be there on a full-time basis. I know about IR35 and I feel this is a situation where this would come into effect as the work I do cannot be delegated to other people. I also have to check when I can take holiday which makes me feel this situation really is full-time employment.

Also not sure if this has any implication, but I do not have any kind of written contract and I also worry this may at some point come back to bite me.  

I don’t really have a legal mind for these things but my heart tells me this situation is not entirely right and not sure wether I should report said company to HMRC or if I should request from them a full-time contract? 

Other things to note is that the company is very small, four people in total, two of them also freelancers. 

If this is disguised employment I feel I am getting a bit of a bad deal as obviously I do not get paid for sick days or get any pension contributions.

Any advice would be much appreciated. 

LinLui

This may be a case of mission creep rather than disguised employment - it may be that the small size of the company and inexperience has led to creating a situation which they didn't intend. That isn't an excuse though - if they are employing people in any capacity they need to know what they are doing. And they clearly don't - but neither do you, because if you are working as a freelancer you should have ensured there was a written contract for your services in place so that they knew what you were providing and expecting.

Neither of your "tests" are really comprehensive. If you found someone capable of taking on the work perhaps it could be delegated - is this something you have tested and have been told that it is you only? And many contractors have to check if the holidays they plan to take would inconvenience people they work for - life is simply not as simple as being able to just take off when you want, even as a contractor. 

You can use this tool to help you think about the situation https://www.gov.uk/guidance/check-employment-status-for-tax

It is possible that you are right in principle - I think that you may be ascribing a deliberate evasion when it probably isn't done with such bad intent though. Small companies often fall foul of te law through ignorance. As I said, that isn't an excuse though. If you feel that you have a bad deal then you should be raising it with them though - nobody but you can fix this and the only people likely to get into trouble are them if you report them. Of course, you may not be getting paid at all at that point. Reporting them won't get you a contract, it isn't going to take rocket scientists to work out who may have done it, and if the company are sanctioned they may end up closing anyway.

Marcon

lesuck said:

Hi all,

I’m looking for some advice on my current work situation. 

I am have been a freelancer since the start of 2018, and in the first two years I worked for different companies, each for a few months at a time. 

Since late 2021 I have been working solely for a company that some ex coworkers started up. I have been working with them solely for two and a half years now.

I am starting to worry that this situation may actually be a disguised employment situation, and not entirely legal, and that I may be liable for some kind of penalty. The reason the contract has gone on for so long is there has been a particular project I have been working on which I have a lot of knowledge on that requires me to be there on a full-time basis. I know about IR35 and I feel this is a situation where this would come into effect as the work I do cannot be delegated to other people. I also have to check when I can take holiday which makes me feel this situation really is full-time employment.

Also not sure if this has any implication, but I do not have any kind of written contract and I also worry this may at some point come back to bite me.  

I don’t really have a legal mind for these things but my heart tells me this situation is not entirely right and not sure wether I should report said company to HMRC or if I should request from them a full-time contract? 

Other things to note is that the company is very small, four people in total, two of them also freelancers. 

If this is disguised employment I feel I am getting a bit of a bad deal as obviously I do not get paid for sick days or get any pension contributions.

Any advice would be much appreciated. 

You should have a contract, whether your are an employee or a contractor - and surely you know that? Sounds as if you are working with a small group of people who haven't a clue what they are doing when it comes to employment law, but are possibly (hopefully!) good at what they do as a business.

It certainly doesn't look like true self employment, so the sooner your get things sorted out the better. If the rates you are being paid equate to what an employee would be paid, but you aren't getting any of the perks, then you're getting a rubbish deal.

Your suggestion that you should 'report said company to HMRC' tells me all I need to know about how you feel over the way you are being treated - but don't do that. You are the one who entered into this situation and you are the one who has allowed it to continue, either because you haven't wanted to grasp the nettle and have a difficult conversation, or because the situation has just evolved and, like the frog in the pan of water, have only just noticed it's getting hotter!

Sort it out - sooner rather than later - by talking to your employers (because that's what they are, from what you've said). 

General_Grant

If it were deemed to be employment, it would not be you who would suffer financially.  It would be the company which would be considered an employer who should have been paying you nett after deduction of tax and NI and, if they had not paid this over to HMRC, then they would be in default.

I think you have a contract but, by the sound of it, not in writing.  If you want to be self-employed, work out your own terms of business and provide them to your client.

Savvy_Sue

lesuck said:

If this is disguised employment I feel I am getting a bit of a bad deal as obviously I do not get paid for sick days or get any pension contributions.

Any advice would be much appreciated. 

In addition to what others have said, if you've been freelancing on the same rate as you'd expect to be paid as an employee, that's on you. Contractors charge more for a reason.

Do you invoice them?

If the work is likely to continue, one possible route out is to suggest that you - and possibly others - should be formally employed. 

DullGreyGuy

General_Grant said:

If it were deemed to be employment, it would not be you who would suffer financially.  It would be the company which would be considered an employer who should have been paying you nett after deduction of tax and NI and, if they had not paid this over to HMRC, then they would be in default.

I think you have a contract but, by the sound of it, not in writing.  If you want to be self-employed, work out your own terms of business and provide them to your client.

It depends, there is a small business exemption to the 2021 changes in IR35 and where that applies it basically becomes the old IR35 where the contractor's PSC is the one liable. 

Secondly, whilst HMRC would chase the deemed employer if they are big enough for IR35 to apply to them the contract between the client and the OP may have indemnity clauses saying they have to repay the client. 

lesuck said:
Since late 2021 I have been working solely for a company that some ex coworkers started up. I have been working with them solely for two and a half years now.

How big are they? Small business exemption is defined by number of employees, balance sheet or turnover, all have to be under the limits for it to apply. 

Time alone isn't a great judge of if a role is inside or outside... how long was the initial contract? Does it have a statement of work? Assuming the original duration has been exceeded why is that? Was the project delayed? Have you been asked to deliver subsequent phases? If you had an SoW has a new one been negotiated?

Ultimately there is IR35 insurance available but it requires you passing their tests to confirm you are outside. 

isplumm

the question is - are you inside IR35 or outside? Do you get paid via an umbrella company? So your tax is paid?

mosaicsquares

I'm in a very similar situation as the freelancer to the above, and have put up with the low hourly rate because I was being trained up. Now, a year on, my skills are better than anyone else's in this 4 person company. I want to make a solid case in writing for a proper freelance rate to my 'non - employer'.

 How do I calculate what freelance hourly rate I should be on, including % for holiday pay, %pension, %Ni etc and perhaps travel to work site - non of which I get at the moment. I'm currently on £14 per hour and would like to know what rate I should be on if I added all the extras on. I've never worked for such low pay as a freelancer and it really irritates me, hence I've dropped to 2 days a week.

I also want to make sure I'm at the minimum living wage at least for my own peace of mind even though I'm not legally entitled to it as a freelancer. Is there a calculation?

Elliott.T123

mosaicsquares said:

I'm in a very similar situation as the freelancer to the above, and have put up with the low hourly rate because I was being trained up. Now, a year on, my skills are better than anyone else's in this 4 person company. I want to make a solid case in writing for a proper freelance rate to my 'non - employer'.

 How do I calculate what freelance hourly rate I should be on, including % for holiday pay, %pension, %Ni etc and perhaps travel to work site - non of which I get at the moment. I'm currently on £14 per hour and would like to know what rate I should be on if I added all the extras on. I've never worked for such low pay as a freelancer and it really irritates me, hence I've dropped to 2 days a week.

I also want to make sure I'm at the minimum living wage at least for my own peace of mind even though I'm not legally entitled to it as a freelancer. Is there a calculation?

As a very rough guide, depending on how in demand your skill set is you should be looking between 1.25x - 1.6x the perm rate.

Without trying to come across as rude and jumping to some assumptions I  guess with the £14 p.h rate that the role isn't a super niche and rare skill set (eg software engineer with a very particular language) if that is the case and £14 is the going rate for permies I would be looking £18-20.

mosaicsquares

Yes the role is super niche, they've just struck lucky with my skillset...so that's the problem and I've been told I'm doing what it took 4 people to do before, which is why the pay is too low. I will work out figures with your suggestion

DullGreyGuy

mosaicsquares said:

I'm in a very similar situation as the freelancer to the above, and have put up with the low hourly rate because I was being trained up. Now, a year on, my skills are better than anyone else's in this 4 person company. I want to make a solid case in writing for a proper freelance rate to my 'non - employer'.

 How do I calculate what freelance hourly rate I should be on, including % for holiday pay, %pension, %Ni etc and perhaps travel to work site - non of which I get at the moment. I'm currently on £14 per hour and would like to know what rate I should be on if I added all the extras on. I've never worked for such low pay as a freelancer and it really irritates me, hence I've dropped to 2 days a week.

I also want to make sure I'm at the minimum living wage at least for my own peace of mind even though I'm not legally entitled to it as a freelancer. Is there a calculation?

There is no set formula and it does somewhat depend on if you are on an hour rate or a day rate. 

When I made the move the target was to take your annually salary and make 100th as your day rate. So if you were on £60,000 you'd aim at £600/day. It was an optimistic target back then and these days day rates have proportionally decreased relative to salaries. 

It does also depend on how niche your skills are... I have unintentionally found a small niche to sit in, I rarely see perm roles advertised to my niche and so id be applying for a more general role with a salary to reflect that. As a freelancer there are many more wanting my niche skills for 9-27 months and as there is less competition rates are higher.