Letter - Beware tax cost of using freelancers

With the upsurge in the use of freelancers ('How freelancers stole a March,' 7 April) and companies turning to them for both short and longer-term contracts, firms need to protect themselves from potential trouble with the taxman.

This means they need to ensure that their freelancers are indeed deemed to be self-employed by HM Revenue & Customs (HMRC).

The taxman concentrates on areas where he expects tax may be underpaid, and so-called 'status' (where someone is either an employee or self-employed) is a lucrative area for him.

Companies would have to provide a list of dates when freelancers worked, copies of contracts and invoices, and a description of what they did.

If HMRC decides a freelancer has been used by a firm for too long, or on too regular a basis, it could deem that freelancer to be an 'employee'.

With this judgement, the company will be forced to pay any underpaid employer's tax (PAYE) - retrospective for up to five years - and National Insurance contributions.

What's more, HMRC could charge interest and a fine, too.

Don't get caught out - if freelancers look and behave like employees, HMRC will likely deem them as such.

Richard Fifield, managing director, Tenon Outsourcing.

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