Freelancer’s Question: We’re two freelancers seeking to work
together on various projects. Freelancer A would be dealing with the client
and manage the projects, Freelancer B would only be supplementing the work of
Our goal is that the client will only receive one project invoice for all services, rather than us both individually invoicing the client, but we don’t wish to set up a limited company.
If Freelancer A invoices the client £1,000, and Freelancer B invoices Freelancer A for £500 for services provided for a project, would this mean that Freelancer A is paying Income Tax and NI on the £1,000, as well as Freelancer B paying Income Tax and NI on the £500? And are there any IR35/ disguised employee issues to consider?
Expert’s Answer: What we have here is two independent sole traders (self-employed individuals), co-operating on projects. In the scenario you describe, Freelancer A's taxable profit would be £500 (£1,000 income less £500 costs) while Freelancer B's would also be £500 (for their income).
If this is a long-running arrangement, Freelancer A and Freelancer B may want to look at, as an alternative to setting up a limited company, registering a partnership. As a partnership, you can both make formal arrangements for such things as sharing the profit, who puts how much cash into the business and at what time, who is responsible if projects go wrong, what happens if one partner wishes to discontinue the agreement, what happens in the event of one partner falling seriously ill or dying, and so forth.
consideration here is that partners are what's called "jointly and
severally liable" for a business's debts. In other words, if Freelancer A
were to empty the partnership's bank account and flee the country, Freelancer B
would still be responsible for paying the partnership's bills, even if
Freelancer B has to sell their own assets to do so. Any partnership should
always have a formal partnership agreement drawn up, as no matter how good
friends you two are, working together can bring out differences of opinion and
underlying issues that haven't previously come to light.
In terms of quasi-employment, if both Freelancer A and Freelancer B are working independently, then this question should not arise, though of course if Freelancer B is under Freelancer A's supervision, direction or control, it may be worth seeking further expert advice to reduce the risk of quasi-employment. Good luck!
The expert was
Emily Coltman, chief accountant at cloud accounting platform FreeAgent.