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Freelancer – Self Employed or PAYE?

Comment 10th July 2010

Imagine, I am unemployed but want to work so I decide to start my own business. I don't have much money so can't incur overheads but I do have some skills so I approach some businesses and offer my services as a freelancer. I am happy to take on odd days work/projects and start building my business. Once I have some cash I can invest and expand but hang on there is a problem, no one will give me any work even though they want to? Why, because:

  • HMRC might class me as an employee and want the business to operate PAYE, leaving the business with a large future potential liability
  • As a new business it is a struggle to prove that you should actually be treated as self employed. I don't own lots of equipment, employ staff, work for lots of other customers (yet) etc.

A solution:

When you become self employed you currently have to register with HMRC. In return you should get the self employed equivalent of a company number perhaps with the safeguard of an industry category you can operate in. This could then be checked by any business you worked for and they would know there would be no comeback years down the line.

Ideally the newly self employed would also get support along with checks to ensure they kept correct records etc.

Why does this matter?

  • It would let people who wanted to work to do so. Less people on the dole or benefits and less chance of getting out of the work habit and being a long time burden on the state
  • Give companies access to a more dynamic subcontractor resource which would bolster their growth
  • Save business substantial time trying to check employment status
  • Allows HMRC to concentrate their limited resources on other areas
  • Remove the worry from business owners that they might, despite taking prudent checks be faced with a substantial bill based on the opinion on an HMRC inspector (All we want is black and white, not the grey uncertainty that much regulation generates)

You should be free to make the choice to be self employed, to take on work (or turn it down). Not everyone wants to be an employee or craves the 'protections' that the nanny state insists on for employees. If it doesn't work you can always go back to being an employee, better to have tried than to have never tried at all.

The benefits of people actually working and new, dynamic subcontractors driving growth far outweigh any loss in National Insurance.

Attempts to control so called 'abuse' by very small businesses such as IR35 have failed miserably, allow the reforms that must surely come soon to make the UK an attractive place to work for yourself.

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