For individuals in the UK’s creative industries, navigating the intricacies of tax can be a daunting task. One specific area of confusion arises with the concept of ‘deemed employment’, a status that impacts tax obligations and benefits for those who might operate as freelancers or contractors but exhibit characteristics of employment.
Deemed employment isn’t an employment contract of any kind, but rather a tax status determined by HMRC for individuals providing services to a client. This status applies when, despite the absence of a formal employment contract, the working relationship between the individual and the client resembles an employer-employee relationship.
HMRC utilises several factors to assess whether an individual qualifies for deemed employment. These factors include:
- Control: Does the client have significant control over the individual’s specific working hours, location, and manner of performing the work?
- Mutuality of Obligation: Is the client obligated to offer work, while the individual is obligated to accept it within reasonable parameters?
- Personal Service: Does the individual personally perform the work, or can they send a substitute with similar qualifications?
- Financial Risk: Who bears the financial risk for costs associated with the work, such as equipment and materials?
- Benefits: Does the client provide any benefits typically offered to employees, such as sick pay or holiday pay?
If these fall into place, and you are deemed an employee, then there’s a number of benefits:
- National Insurance Contributions: Deemed employees qualify for certain National Insurance contributions, which contribute to their state pension and other benefits.
- Statutory Employment Rights: Depending on the specific circumstances, they might be entitled to some statutory employment rights, such as minimum wage protection and holiday entitlement.
As ever with British employment laws, there are also implications:
- Deemed employees are subject to income tax and National Insurance contributions deducted at source, similar to traditional employees.
- Deemed employment can sometimes overlap with the Intermediaries Legislation (IR35), which aims to prevent individuals from avoiding taxes by working through intermediaries like limited companies. Navigating both deeming and IR35 can be complex and requires careful consideration.
Creative professionals like freelance writers, musicians, or actors often operate in a collaborative landscape, sometimes blurring the lines between self-employment and traditional employment. To determine potential deeming status check the key factors (above) or, easier still, give us a call.
