With the latest ruling being handed down from the Supreme Court in the UBER vs Drivers case today and the imminent arrival of IR35 in April, what are the broader implications for recruiting freelance chefs?
Gone are the days where people were either employed or worked for themselves, there’s a myriad of different employment statuses all having different benefits and drawbacks:
- Employed: Paid by employer, tax & NI deducted on a pay as you earn (PAYE) basis, fully covered by all employment legislation and benefits – paid holidays, sick pay etc
- Worker: A hybrid version of the Employed and the two options below.
- Limited company: Revenue coming in is the company’s NOT the directors, Can be paid by dividend which isn’t liable for NI contributions making it more efficient
- Sole Trader: No real perks, no job security & plenty of liability – simpler to run as a business though.
Most Freelance & temporary chefs fall into the two last categories. They trade job security, paid holidays and all the other benefits of being an employee for greater flexibility, usually higher rates of pay and so on.
However, come April that is all about to change with the arrival of IR35. Already clients who are recruiting freelance chefs are saying no to Self Employed (Sole Trader) & Limited Companies because of the lack of clarity from HMRC over the subject.
So what’s the alternative to recruiting freelance chefs?
Well, it might be possible to engage the services of a culinary prostitute, but at what cost? Estimated increases range from an additional 20 to 30% because some tax deductibles, when a chef is self-employed can no longer be claimed, things like travel & sustenance for example. So all of a sudden a freelance chef goes from costing £14 per hour to £18.20 – then the client (now actually the employer) is also saddled with the employer’s tax & NI contributions of about 14%. So the real cost to an SME who needs bailing out then comes in at £20.75 plus the recruiter’s fee as well.
However, there is a glimmer of light.
There is the ‘Small Company Exemption’, as explained by the ContractorUK website:
Some of the best advice we’ve heard is to take the HMRC test, via their tool (CEST is found here), to clarify what your freelance chef’s IR35 status will be.
Could all this be avoided?
Well, not at the moment, but going forward the answer is YES.
The construction industry has a system called CIS for its workers, who are often no different from freelance chefs. This is how HMRC describe it:
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).
The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.
I fail to see if there any downsides to this type of system being implemented – it’s a win for everybody without being ridiculously heavy-handed, which IR35 is for hospitality & the businesses recruiting freelance chefs.
Final thoughts & conclusion
Even with exemptions in place, many SME will shy away from recruiting a freelance chef unless they go PAYE & most freelancers won’t want that – nobody benefits, least of all HMRC because tax revenue will diminish.
Whilst elements in Hospitality will say ‘good, temp chefs are sh!t, they can’t hack proper jobs’, we believe they provide a vital service. They are often called in on short notice and can be terminated just as quick, they can stabilise a brigade where people have left and the remaining team’s workload increases – risking more departures.
Ultimately, nobody likes paying more tax than they have to (ask Gary Barlow). But the CIS system seems a win for everybody – it’s not a complex system (unlike IR35), it’s transparent and there wouldn’t be the £21 per hour Chef de Parties floating around which IR35 will invariably create.
Because UBER thought they could win their five-year case and shirk their responsibilities with clever accounting, we are going to see the consequences filter through into other sectors – potentially we are looking at the end of freelance chefs as we know them…
…Or is now the time to evolve a system that is better for everybody?
Legal note: Nothing in this blog post constitutes legal or tax advice. Always seek professional expertise – not Karen on Facebook.