So you want us to think you're self-employed?
Being freelance makes a huge difference to your tax position.
Wednesday 08 May 1996
Client: Is there a problem?
AS: Well, there may be. From a narrow tax perspective, it's a contradiction in terms to be on the one-hand "freelance" whilst on the other "working for an organisation".
Client: Is it that important whether I'm treated as self employed or employed?
AS: Yes! If you are employed, tax and national insurance are deducted by your employer from your income each month. When you are self-employed, you may deduct your business expenses from your total income in arriving at the net profit to be charged to tax.
To claim deductability, expenses have to be incurred wholly and exclusively for the purposes of the business. In practice, the Inland Revenue will also generally allow a reasonable apportionment of certain expenditure where there is partial business use. You will then pay your tax and national insurance based on the net profit twice a year on 1 January and 1 July, although this will change somewhat under self-assessment.
Client: O.K. Well, I have an arrangement with Southgate to work for them two or three days a week depending on the assignments they have for me.
AS: Does this mean you go to their premises on those days?
Client: Does it really matter?
AS: Yes, it could do. The question of employment or self-employment can be a grey area. Whether or not you are truly self-employed will be very much dependent on the facts. It is not one of those areas that is set down in law, but has been subject to a number of decisions in the courts over the years. There are a number of key areas to explore.
Who exercises control over your work?
Who provides you with the tools, equipment and facilities to carry out your work? What level of freedom do you have in determining the way in which you go about carrying out the assignments?
What contractual arrangements do you have with Southgate? Is it a contract for services, or a contract of service?
Client: Hang on. I do have a contract for services. My arrangement with Southgate is that I must be available for up to 120 days a year to carry out assignments at their request. They set the assignment, such as a review of working practices in one of their factories, then it is up to me how I set about the assignment. In fact, I have got the facility within my contract to sub-contract that work to someone else should I want to.
I visit whichever one of six sites are appropriate in the course of my assignment. Once I have completed the site visit, I write a report summarising my findings and make whatever recommendations I see fit.
The company may let me use a spare office if there is one available when I am on site. In reality, I may use one of their offices to interview their staff or review their records in appropriate cases but that's about all. All the rest of it is down to me.
AS: Do you work for anyone else?
Client: I would like to! - 120 days' work a year is not enough.
AS: As things stand at the moment, I am quite happy about your self-employed status. No one attribute on its own makes the issue conclusive, it's a matter of looking at your position overall and forming a view. However, if you were to have contracts with another two or three organisations your position would be even clearer.
Client: Can I ask you about something else?
AS: Go ahead.
Client: I am very tempted to take up Southgate's offer of a company car. Is that all right?
AS: No! I would not recommend that at all. Acceptance of a "company car" could prejudice your whole status. Your relationship will become much more like that of employer/employee; you would be more closely associated with the company as opposed to working on behalf of the company. Although the provision of the car may not be wholly conclusive, it would make any dispute with the Inland Revenue much more difficult to resolve in your favour. Why would the company want to provide someone who is working for them on a self-employed basis with a "company" car?
Client: I get the message.
AS: In any case, your contract with Southgate entitles you to claim your expenses so you can invoice them for a mileage allowance. Although this would form part of your taxable income, all the expenses you incur in connection with running the car, including an allowance for the capital cost of the car, can be claimed against your profits. Of course, this has to be restricted to the business proportion out of the total.
Client: Fine. I did not really appreciate that. I can claim all my expenses against my income for tax then?
AS: To the extent that they are incurred for business purposes, yes. That would also include a reasonable claim for that proportion of your home expenses used in connection with your business.
Client: Yes, I do virtually all my report writing and research from home, where I have my computer and professional reference books.
AS: That's fine. If you could now let me have all the details of your income and expenditure over the year, I will prepare your accounts for you and discuss them with you. I know from our initial conversation that you're keen to put money into a pension plan and I will let you have an idea of how much you can put in when we meet. Of course, your pension premiums attract full tax relief.
The writer is a tax partner at accountants Kingston Smith.
10 tips for taking out a personal loan
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 26-30 January
Revealed: Amazon earns more through government grants than it pays in tax
City Watchdog to investigate banks' handling of PPI compensation claims
- 1 Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
- 2 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 3 Dad attempts revenge on teenage daughter, plan backfires spectacularly
- 4 Ball pool for adults opens in London
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion