Self-employment and Consultancy

What does it mean to be self-employed?

Someone is likely to be self-employed (sometimes referred to as a consultant or a freelancer) if they:

• Are providing a service on a freelance basis or through their own limited company;
• Can decide when and how they do the work;
• Can work for more than one company (sometimes referred to as a “client”);
• Can send someone else instead of them to do the work (often referred to as a “right of substitution”);
• Invoice for doing their work as opposed to getting paid a salary;
• Are responsible for their own tax.

What rights does a self-employed person have?

Apart from those set out in their written contract, not many compared to those who are employees or workers. However, they do have protection from being discriminated against, and they must also have their health & safety looked after when they’re working at a client’s premises.

What paperwork should be in place for a self-employed person?

A written contract setting out the relationship between the self-employed person and the company (or client) is a must. This is often referred to as a consultancy agreement or a contract for services. Seek legal advice before putting one in place however, because it’s important to get them right at the outset.

What should be included in a consultancy agreement?

As a bare minimum, you would expect a consultancy agreement to include things like:

• What service (or time commitment) is to be provided by the self-employed person;
• What fees will be paid to the self-employed person;
• How long the arrangement will last and how it can be ended;
• What information should be kept confidential by the self-employed person;
• Who will own the intellectual property rights of anything created by the self-employed person?

Just because someone has a consultancy agreement, does that definitely mean they’re self-employed?

No. Whilst the written contract is important, the main question will be whether the relationship, in reality, is a self-employed relationship. If it isn’t, there’s a risk that a court will decide that the self-employed person is actually an employee or a worker, and have all the employment rights which come with that.

Can someone be self-employed through their own company?

Yes. Often an individual will set up their own limited company (sometimes referred to as a personal service company) in order to provide their services and charge their fees through that limited company. There can be some tax advantages to doing this. However, care should be taken with operating this way due to the possible impact of IR35.

What is IR35 and how does it work?

IR35 is a piece of tax legislation. It means that, despite someone providing self-employed services through their own limited company, if in reality the relationship between them and another company is more like that of an employer-employee, the self-employed person will end up being taxed as an employee. This will mean that the company using the services of the self-employed person will be responsible for making deductions for tax and national insurance before paying the self-employed person.

When will IR35 definitely not apply?

Even where a company (let’s call them Company A) contract with someone through their service company (let’s call it Company B), IR35 won’t apply where Company A is a “small” company. A small company is one which meets two or more of the following:

• Has an annual turnover of no more than £10.2m;
• Has a balance sheet total of no more than £5.1m;
• Has an average of no more than 50 employees.

If you need any advice on self-employment or consultancy, please contact a member of our employment law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.