Freelancers' Questions: Is sole trading the way to go post-April?

Freelancer’s Question: I want to change the contract I’ve got for an agency via an umbrella company to become and operate as a sole trader – a freelancer. I wish to avoid the fees I pay to the umbrella company. I also don’t fancy being an umbrella worker whose ‘directed’ at work come from April.

But the agency says I have to be either a limited or umbrella company. They told me it’s not possible for them to continue to place me if I’m not either, but I suspect this is more the agency’s policy than a requirement. Do you think I could push the agent to accept me as a sole trader – an unincorporated freelance business?

Expert’s Answer: I surmise from your question that you believe that your tax position as a sole trader would be better or the administration on you simpler. I recommend that you prove that either perceived advantage does, in fact, exist before you proceed.

The obstacle you’re coming up against is that under the terms of legislation in place (ITEPA 2003), a recruitment agency risks being held responsible for any employment taxes that may be owed if you, as a sole trader, don’t account for them properly. This liability does not arise if the agency works with a single-person limited company or an umbrella company.

Moreover, the debt transfer element of the legislation means that no recruitment agency is likely to engage with a sole trader, as potentially being responsible for someone else’s tax debt is too much of a financial risk to make any kind of commercial sense.

In addition, debt transfer is being used in new legislation surrounding tax relief on travel and subsistence expenses. So from April 2016 an agency or client could find themselves liable if they provided false documents to support a claim that a worker was not under Supervision, Direction or Control.

Editor’s Note: Related Reading –

Freelancers’ Questions: Do sole traders get maternity allowance?

Freelancers’ Questions: Is it easier to close down if I’m a sole trader?

Freelancers’ Questions: How much to set aside for tax?


21st February 2016

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