Media breakfast seminar slides

Media Breakfast Seminar
16th January 2013

kim.liddiard@yourfutureyourlife.co.uk

Agenda

• Introductions
• Organisations use of freelancers / definition within their business / business critical
spend on freelancers
• Why we are where we are
• Public Accounts Committee -17th September 2012
• Current problems/issues/pain points
• Current solutions
• How can technology help
• Conclusions


Questions
1. How do you define a freelancer within your organisation, how many different ‘types’?

2. What level of payments do you currently make to freelance effort?

3. Who is responsible for contracting with freelancers?

4. What are some of the challenges you face in managing / dealing with freelancers in your business?

5. Do line managers understand the potential risks for the business around the status of the people they want to use?

6. What solutions have you found to the problem of indentifying freelancers/ casual employees etc

7. What would make life easier for you / your organisation?


Public Accounts Committee
• Public Accounts Committee Off-payroll arrangements in the public sector. The published
report was ordered by the House of Commons to be printed 17 September 2012.

• Off-payroll arrangements are those where individuals, either self-employed or acting through a
personal service company, are paid gross by the employer.

• While off-payroll arrangements may sometimes be appropriate in the public sector for those
engaged on a genuinely interim basis, they are not appropriate for those in management positions
or those working for a significant period with the same employer. Such arrangements reduce
transparency and can be perceived as an endorsement of tax avoidance.

• The BBC told [us] that it would be carrying out a detailed review of its off-payroll arrangements. The
BBC's review should specifically consider whether the contracts resemble typical employment
contracts, their duration and the number of repeat contracts, and the salaries involved.


History - why we are where we are:

• Headcount issues lead to ‘recruitment via other means’ – as
freelancers are not counted

• Budget constraints - as able to reduce the employers NI, pay less
than ‘ee and individual can offset more expenses against income

• Kudos for freelancer in not being an employee

• Perceived opportunity for more flexibility


Current problems/issues/pain points
• In this presentation I refer to ‘freelancers’ as people who do not pass the
status test

• Responsibility for correct tax treatment that of the ‘person’ making the
payment

• HMRC will collect tax (retrospectively for previous six years) from the
business / organisation not from the freelancer, with interest and penalties

• The amount paid is deemed to be the net amount and the sum is grossed up
and NIC applied
E.g. Freelancer receives £20,000, HMRC will gross up assuming 20% tax rate to
£25,000. Tax due £5,000. NIC £3,450 (i.e. c43%)


Hence personal service limited company or intermediary (loan out company):
• Separate legal entity in law
– Can pay self in dividends, avoids NIC
• Legitimate provided
– Contract was with the ltd company
– All payments made to bank account in ltd company name

• IR35 was introduced to try to stop these ‘sham’ arrangements
– Own more than 5% of shares or p’ship entitled to 60% of profits
– IR 35 looks to pierce the corporate veil
– However, only 23 enforcements in 2010/11(HMRC have promised to achieve 230 +
in 2012/13!)


• Challenge is that the organisations do not have the resources or the
knowledge within them to be able to make the decisions about contractual
status of ‘freelancer’

• Status test is subjective and difficult to follow and often requires a knowledge
of what that person is doing in other parts of the organisation

• Individuals can have more than one type of status at the same time for the
same organisation

• Many organisations have line managers making decisions about status of
individuals totally unaware of what they are doing, with no process and no
guidance as to how to get it right


• Payments to freelancers / Service Companies are uncontroll(ed)able and
unseen - payments go through ‘contributors’ ‘ accounts payable’ ‘other
systems’ most controls around payments that impact on people are usually
via payroll (most organisations affected are unaware of the size of the problem)

• HMRC believe that these ‘freelancers’ should be put on the casual payroll –
this is a disadvantage to the freelancer (no employment benefits) – worst of
both worlds

• TV Industry has special arrangements which are unique and complicated:
– entertainers are usually freelance but NIC deducted
– for people in front of the camera Modus Operandi
– the 7 Day Rule (NIC still due on payment but can be paid gross).
– Lorimer letters



• Even dealing with the low hanging fruit can be time consuming

• Organisations are being audited by HMRC and finding that this is a costly issue to ignore
(e.g. 9 freelancers wrongly paid without deduction of tax HMRC bill £2m for back tax,
penalties and interest)

• Currently there is no easy process / system or answer to the status issue question

• Trade Interchange believe that they can offer a solution


Current solutions

• Organisations either:

– Employ a department to do relevant checking of all contracts and methods of engaging ad hoc
resource

– Ban freelance activity and costs increase as everyone is on payroll irrespective

– Ignore the problem and hope it will go away and sweat a little when a competitor is caught out

– TI - Technology solution where the freelancer / ltd company / line managers complete the data
and HR facilitate, educate, monitor and support the business during the process


Thank you for your participation.


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