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When is a contractor not a contractor? When they get taxed.

Dave Chaplin, CEO, ContractorCalculator:

I say ‘contractor’, HMRC says ‘temps’. We say ‘freelancers’, MEPs say ‘agency workers’ and others prefer ‘consultants’. Let’s call the whole thing off!

It’s getting to the point where if a parent is asked, “What do you do Mummy/Daddy?” they are likely to get the reply, “I don’t know, dear, I need to check with the taxman.”

Many people work on a freelance basis. Some firms use freelance contractors; other use temps. Many contractors who slide gracefully into consultancy call themselves ‘freelance consultants’. Confused?

Well pity the poor taxman, who has to sort all this out. Unfortunately, all the evidence suggests that HMRC simply won’t acknowledge that there is an alternative way to earn money, other than being either employed or self-employed. So I’d like to help out with a few definitions:

  • A freelancer finds their own clients and works concurrently on small projects for many clients. Contracts are rare; work is performed personally with the occasional subcontract. They are often home based, have full control over how they work and invoice clients direct. Examples are journalists, designers or photographers – highly skilled occupations.
  • Contractors get project work via agencies for single clients. They have a contract for services, which means they can substitute (sending in someone else to complete all or part of the work), but rarely do. Most work is conducted at the client’s site without client control, but with clear project deliverables. They invoice the agency and are typically software developers, engineers or project managers – again highly skilled occupations.
  • Temps (or temporary workers) find work via agencies and do what work is provided by the client manager personally, turning up every day at the client’s site regardless. They have an employment-like contract and get paid via the agency’s payroll. Temp occupations are often, but not always, lower skilled, and include secretaries/PAs (not a low skill!), cleaners, hospitality workers and labourers.
  • Agency workers are basically temps in ‘Eurospeak’, because we never really used the term until the European Union’s Agency Workers Directive came along and threatened the existence of anyone who uses an agency. Contractors or freelancers they definitely ain’t.

Now, did anyone spot the word ‘employee’? No, of course not. So where do HMRC get it from, then?

Published: 08 December 2008

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