Q I was recently made redundant by my organisation but have been invited back to work for them as a freelance. What would be my tax position?

A As a freelancer, tax is payable on your profits – effectively your fees minus your business costs. Typical costs and allowances will include travel and subsistence, phone costs, training courses, home-office use and the purchase of equipment. If freelancing is your only income then the following applies from 6 April: the first £7,475 of profits are tax free; profits over this are taxed at 20%; profits over £42,475 are taxed at 40%. In addition you will normally pay two lots of national insurance (NIC), a weekly amount of £2.50, in addition you pay NIC at 9% where profits are over £7,225. This increases to 11% once profits go over £42,475. Tax is normally paid at the end of January and July.

The above should be taken only at face value and is based on the critical assumption that, in tax terms, you are actually a freelancer. If not, then in the eyes of the tax office your previous organisation should be paying you through the payroll. It costs organisations between 10% and 12% more to use an employee rather than a freelancer, this cost difference being due to employers’ national insurance. The responsibility for deciding whether to pay you as a freelancer or as an employee is with your previous organisation (and any future clients). The financial and legal risks of getting it wrong lies mainly with them (though those risks become yours if you operate through a limited company). In tax terms there would be have to be certain realities for you to be classed as a freelancer. These include you having the right to send someone else to do the work in your place; the right to decline to perform certain work; and you taking responsibility for rectifying work in your own time and at your own expense.

If you effectively provide the same services and in the same manner, for example hours of work or level of control and accountability, to your previous organisation then this will be a strong indicator that are effectively an employee. This ‘employment’ status will be further reinforced if your previous organisation becomes your main or sole client.