Freelancer or Employee? The Label Will Not Save You

Ever looked at someone on a monthly invoice and thought, “They’re freelance… I think”?

This episode is for that moment.

In this episode of Buzzing About HR, I get into one of the most common and risky questions small businesses ask. Is this person genuinely self-employed, or have we accidentally created an employment relationship and just called it freelance?

Because the label does not save you.

If someone works regular hours, only really works for you, follows your systems, and looks for all the world like part of the team, HMRC is not going to be impressed by the word “freelancer” in the contract. They care about what is actually happening day to day.

And this is not just a big business problem. We have all seen the headlines around presenters, broadcasters, and referees, but small businesses get caught too. The tax risk, the employment rights risk, and the “how did we not spot this sooner?” panic are very real.

So in this episode, I talk through a simple freelancer sanity check you can actually use. We cover the things that really matter. Control. Substitution. Mutual obligation. Length of relationship. Day-to-day reality. Not just what the paperwork says, but what the arrangement looks and feels like in real life.

I also talk about why employment status is not static. Someone can start out genuinely freelance and, over time, quietly become something else if the relationship changes and no one stops to review it.

This is about more than avoiding an HMRC headache. It is also about fairness, clarity, and not leaving yourself with a messy situation that could have been dealt with much earlier.

If you use freelancers, contractors, or consultants in your business, this episode is well worth a listen. It might save you a lot of money and a lot of stress.

Subscribe, share it with a business owner who needs a reality check, and leave a review so more small businesses can get this right before it gets expensive.

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Transcript

Why Employment Status Matters

Speaker 1 0:38

Picture this it's just after 7am on the morning of the 1st of July 2025 and I'm out on a dog walk with H, our office wellbeing officer, part-time squirrel chaser and freelance cheese consultant. We're meandering along one of our favourite trails in the New Forest. The weather is that perfect early summer combo Mild sunshine, high teens, a gentle breeze. My phone's buzzing in one pocket, I've got a lukewarm coffee in the other hand, and H is happily bouncing ahead, tail up, nose twitching and then ping a voice note from a client Kate, quick question. We've got a freelance designer. She invoices us monthly, works regular hours every week. That's fine, right? Just as I'm about to reply, h stops, turns and gives me that. Look the one that says Mum, that sounds suspiciously like payroll with extra paperwork. She's got a point. Even if someone's invoicingicing, calling themselves freelance or working through a limited company, it's the reality of the working relationship that counts, not the label. So if you've ever hired a freelancer or are thinking about it and want to avoid surprise hmrc bills and tribunal risks, stick around. By the end this episode, you'll know when a freelancer might actually be an employee, how HMRC decides these things and what steps you can take right now to protect your business.

Real-Life Examples and Consequences

Speaker 1 2:16

Welcome back. I'm Kate Underwood, hr consultant, workplace translator and general champion of stress-free compliance. You're listening to Buzzing About HR, the podcast for small business owners, people managers and the accidental HR person who's just trying to keep it together. Let's get stuck in Part one why status matters. So why does this freelancer versus employee thing even matter? Because if you get it wrong, the consequences aren't just awkward, they can be expensive. We're talking backdated income tax, employers, national insurance contributions, interest penalties and potentially a public tribunal if it all goes horribly wrong. Now, most small businesses don't fall under the off payroll working rules, also known as IR35 for large companies, but that doesn't mean HMRC won't come knocking. If someone is working like an employee, hmrc can still reclassify them, even if they invoice you and call themselves freelance.

Five-Step Freelancer Sanity Check

Speaker 1 3:26

The law looks at the working arrangement, not the paperwork. Part two real-life examples. That should make you sit up. Let's take a look at a few real-world examples just to give this some punch. Adrian Chilles, the TV and radio presenter, faced a claim from HMRC for nearly £1.7 million in back tax and NICs. Why? Because, despite invoicing through a limited company, hmrc argued that the way he worked with broadcasters looked more like employment. Kay Adams went through multiple tribunal rounds defending her freelance status with the BBC. She eventually won, but only after a huge legal and emotional battle, and most small businesses wouldn't have the time or budget for that. Even Premier League referees were dragged into this in 2023. Despite working through companies, tribunals had to decide whether they were really just employees in disguise. The point is, this isn't just about celebrities or massive organisations. Hmrc is using these cases to tighten up everywhere.

Speaker 1 4:44

Part 3. So how do you get it right? Here's your five-step freelancer sanity check. Step 1. Use the HMRC CEST tool, that's Check Employment Status for tax. It's free, updated regularly and gives you a status determination at the end. Document it and keep it on file.

Myths and Mini-Dramas

Speaker 1 5:08

Step two look beyond the contract. Is the freelancer genuinely in control of how and when they work? Can they send someone else in their place? Are you treating them like part of the team? Step three think about mutual obligation. Are you committed to giving them work each week and are they committed to turning up? That's a red flag. Step four check how long they've been with you. If they've been working regular hours for more than six months, hmrc may say they're an employee, regardless of invoices. Step five Avoid disguised remuneration schemes. If it looks dodgy, smells dodgy or promises to save tax in a way that makes your accountant frown, walk away.

Speaker 1 6:02

Part four myth busting and mini dramas. Let's bust a few myths. Myth one they invoice, so they must be self-employed. Nope, not if they work regular hours under your control. Myth two they have a limited company, so IR35 doesn't apply. That only helps in certain scenarios. If you're the engager, you still need to check status. Mini-drama One of my clients once hired a VA through her own company.

Listener Questions Answered

Speaker 1 6:34

After a year of nine to five hours in team meetings, hmrc reclassified her as an employee. The client ended up paying backdated employers NIC and got a slap on the wrist. It was avoidable. All it took was a quick status review six months in Part 5. Listener Q&A.

Speaker 1 6:58

Here are a few recent questions from you lot Q Am I responsible if the freelancer has their own company? A. If you're a small business, technically they determine their own status, but HMRC may still challenge it if it walks like a duck and quacks like payroll. Q Do I have to run the CESS tool for every freelancer? A. It's not a legal requirement but it's a very good idea, especially if they're working regularly or doing set hours. Q what if we realise too late that we've misclassified someone? A Get advice, run a proper audit and correct it going forward. A Get advice, run a proper audit and correct it going forward. Hmrc tends to be gentler with proactive businesses who spot and fix their own mistakes.

Smart Practices and Final Thoughts

Speaker 1 7:54

Part 6. Buzzword of the day. Today's buzzword is status is not static. Just because someone was freelance three months ago does not mean they still are now. Check in, review, update your CEST, especially if scope or hours change. Part seven when employers get this right.

Speaker 1 8:18

One of my clients, an events company, has a simple rule Any freelancer doing more than 10 hours per week gets a CESS check logged and reviewed every three months. Another switched a long-standing freelancer to a zero-hours contract. Why? Because they were clearly operating like an employee. No drama, no fuss, just a smart, proactive move. No drama, no fuss, just a smart, proactive move. Both have avoided nasty surprises and their teams know exactly where they stand. Final thoughts Getting freelancer status right is not just a tax thing.

Speaker 1 8:58

It's about protecting your business, treating people fairly and sleeping a bit easier at night. If you need help reviewing contracts, running cess checks, or just want someone to give your freelancer agreements a once over, I can help. Drop me a line at kateunderwoodhrcouk or send me a message on LinkedIn. Let's keep things fair, simple and off the HMRC radar. That's all for today's episode of Buzzing About HR. If you found it helpful, share it with a fellow small business owner, leave a review or tag me in your next panic turn sorted HR moment. Until next time, stay compliant, stay calm and maybe give your freelancers a friendly double check. Bye for now.