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Thursday 16 February 2012

The Freelance Misunderstanding

[Update at end of post]

Every so often, the Fourth Estate works itself into a lather about people being paid through limited companies. This is especially true where the individual concerned is working for a Government body or public corporation – think John Birt at the BBC – and it totally fails to appreciate the nature of the UK’s labour market. Make that the flexible nature of that market.

We are constantly being told that the labour market should be more flexible: well, folks working through limited companies are one sign of that flexibility. I know this, as I am a freelance worker, and I work through my own limited company. There is nothing underhand or devious about this arrangement: indeed, in the past this was the (then) Inland Revenue’s preferred way of dealing with freelances.

And all the guff about “loyalty” is just that: this depends on the length of contract agreed, any notice period or lack thereof, and the relationship between worker and employer – as would be the case with permanent staff, except with a freelance, a whole load of less convenient stuff (pension provision, holiday pay, taxation, sickness, even professional indemnity cover) is down to the worker.

That, along with the ease of disposing of them when demand dips, makes freelances a much more attractive proposition. Moreover, the talk of tax avoidance may also be just talk: if the freelance works only for one employer, they are usually said to be “caught” for the purposes of the detested IR35, and so cannot avoid liability for National Insurance payments by taking some payment as a dividend.

So, having explained what should not really need explaining, it was strange to see the Guardian covering this story in the way it has – given that it, and all the other papers running it use freelance workers (Nick Davies of Flat Earth News and Phonehackgate fame is a freelance) and should therefore be well aware of what is going on. It should not be new news.

Instead, the story has been lifted by the Mail, where the assertion has been made that “More than two dozen senior officials at the Department of Health are being paid their salaries via private companies in an attempt to avoid tax”, which is complete baloney. Moreover, the sums quoted are not the salary that the individuals are paid, but the gross payment made to the limited company.

This – deliberate – misunderstanding is something that the so-called Taxpayers’ Alliance (TPA) uses when trying to make freelance assignments with Government agencies look more generous than they are. Rule of thumb, as I’ve noted previously, is that a rate of £10 an hour equates roughly to £10k a year when all the costs loaded onto the limited company are paid.

The TPA, of course, wants a flexible labour market. So why the complaint?

[UPDATE 1850 hours: Sadly, it seems that ignorance of freelance workers and limited companies extends to the perpetually thirsty Paul Staines and his tame gofer, the flannelled fool Henry Cole, at the Guido Fawkes blog. The less than dynamic duo have served up a substantial helping of steaming bovine by-product this afternoon in an attempt to kick Labour's Andy Burnham.

Like the Mail, the Fawkes blog describes folks at the Department of Health being paid through limited companies as "a Whitehall-wide tax-dodge", then tries to suggest that there is something wrong with Burnham's advisor Kevin Lee being paid in this way. It is in fact a very good way to offload all sorts of costs on to Lee and his company, as I pointed out (see above).

Then the Fawkes blog gets all confused and tries to infer that Lee's directorship of another limited company means he was benefiting from NHS work that company did. Sorry lads, you'll have to go through the books to figure that one out - and I suspect the accountants are not about to let you. Another fine mess, once again]


Jamie said...

Any thoughts on the Ed Lester position?

Tim Fenton said...

As a freelance myself, I can't see what all the fuss was about.

If Lester was avoiding paying Employee's NI, and he was in a single contract (equivalent to a staffer), he'd have been "caught" by IR35.