When hiring contractors and freelancers, beware of the taxman

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When hiring contractors and freelancers, beware of the taxman

Ellie
May 2018
Copestone blog about tax compliance

Hiring contractors and freelancers is a great way to access specialist skills and increase capacity. But non-employed contingent workers come with compliance risks. Do your due diligence or your organisation could become liable for their unpaid tax.

All businesses outsource. Cleaning, bookkeeping, hedge fund accounting and legal services – just about any service can be farmed out to a third party. Outsourcing is a favoured option because the hiring company only pays for these extra skills and services when they need them. And outsourcing provides access to expertise not available within the hirer’s organisation.

Copestone is no different – many of our clients are organisations with inhouse marketing teams looking for strategic marketing and copywriting expertise and/or additional capacity. If you need something standalone, like a brochure, or copy for a new website, hiring a professional copywriter for a one-off job is a great solution. And extending the relationship on a retainer basis, with bespoke terms and conditions, can be a mutually beneficial way of conducting business.

What’s it got to do with the taxman?

The taxman will pay no attention if a freelancer does the occasional job for you, but if you start to provide them with regular work, or hire them on a contractual basis, you could attract HMRC’s interest.

Many freelancers and contractors incorporate a limited company to ringfence their personal assets from their business, and also to enjoy some modest tax benefits. HMRC is targeting contractors and freelancers aggressively because it believes – wrongly – that using a ‘personal service company’ (PSC) is some kind of tax dodge.

However, there is nothing illegal in this. The self-employed carry the burden of no holiday pay, pension or other employment benefits. Nor do they enjoy job security, but the modest tax benefits go a small way to offsetting this burden.

Why tax legislation matters to you

Tax legislation called IR35 forces the contractor to pay additional income tax. And National Insurance Contributions (NICs) can be applied if the taxman believes that a freelancer or contractor you hire should really be an employee. From April 2019, It is likely that hirers will be responsible for policing IR35.

Also, if the freelancer is a self-employed sole trader, there are circumstances under which HMRC can demand tax and NICs shortfalls from the hiring organisation, under debt transfer provisions. In some cases, the taxman has even gone after the company directors personally for unpaid tax.

What’s the solution?

Regardless of the taxation burden, businesses will continue to need and choose outsourcing. Marketing and content campaign requirements mean that businesses will always require support on a contingent basis, particularly if specialist skills and knowledge are needed.

Fortunately, there are still ways of finding high-quality freelance marketers and copywriters while ensuring tax compliance. Copestone has thorough onboarding processes that ensure our freelance specialists are up-to-date with their tax affairs, and we comply with HMRC’s demanding ongoing reporting requirements to ensure our team stays compliant.

If you’re concerned about the tax status of your current freelance workforce, or if you want agency support you can be sure is compliant and low risk, contact us – we’d be delighted to discuss how we can help.

What can we do for you?

For a no obligation discussion about how we can help you meet your marketing and communication objectives call or email us.

+61 (03) 9863 7463 mail@copestone.com.au

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