Creative businesses love flexibility. You scale up for a project, bring in the right talent, plug the gaps and keep the work flowing smoothly. And the easiest way to do that is often to hire freelancers.
But there’s one not-so-creative side to this: getting the status right.
Whether someone should genuinely be treated as a freelancer — or should actually be on your payroll — is something HMRC take very seriously.
Get it wrong, and the fallout isn’t just admin headaches. We’re talking unexpected tax bills, penalties, backdated employer’s NIC, and tricky conversations you’d much rather avoid.
Here’s what creative business owners need to know.
Why the freelancer vs. payroll question matters
Think of employment status as a simple question:
Are you buying a service… or hiring a worker?
It’s not up to you or the freelancer to “decide” based on preference.
Employment status is determined by the facts of the working relationship — not the contract label, not what your mate's agency does, and not how the person invoices you.
If you get it wrong, HMRC can demand:
- Unpaid PAYE tax that should have been deducted
- Employer’s National Insurance (13.8% for most roles)
- Employee’s NIC that wasn’t collected
- Penalties and interest
- Holiday pay and other employment rights if the individual challenges their status
For a small agency, those numbers can be eye-watering.
When is someone genuinely freelance?
Freelancers typically run their own business and control how they work. Signs someone is truly self-employed include:
✔ Control
They decide how, when and where the work is done — not you.
✔ Substitution
They can send someone else to do the job (even if they rarely do).
✔ Own equipment
They bring their own gear — cameras, software, studio kit, editing suite, etc.
✔ Multiple clients
They don’t rely on your agency as their only income.
✔ Risk and reward
They quote for work, correct mistakes at their own cost, and can make a profit or a loss.
✔ Short assignments or project-based work
Freelancers are typically brought in for specific outcomes (e.g. "deliver this film edit", "build this website", "craft this brand identity").
If your working relationship looks like a typical employee relationship… HMRC will treat it like one.
Red flags that someone is actually an employee
Here’s where agencies often slip up.
If any of this sounds familiar, you may need to rethink the arrangement:
❌ You decide their hours
Even loosely (“We need you in from 10–4 each day until the project is done”).
❌ They work only for you
Or they need your permission to take on other work.
❌ You provide the tools
Laptop, camera, software licence, desk space, etc.
❌ You manage them like staff
Checking in daily, setting priorities, approving holidays.
❌ They don’t take financial risk
If something goes wrong, the cost falls on you — not them.
❌ They’re part of your normal team
Regular Monday meetings, Slack channels, team calls, client presentations.
This is classic employment, even if there's no employment contract.
Where IR35 fits into all this
If your freelancers operate through their own limited companies (PSCs), IR35 comes into play.
- If IR35 doesn’t apply → the freelancer invoices as normal.
- If IR35 does apply → you treat them like an employee for tax purposes (PAYE, NIC), even though they remain technically self-employed.
Medium and large companies must make the IR35 status decision.
Small companies (as defined by Companies Act) don’t, meaning the contractor self-assesses — but that doesn’t remove your wider risk around employment status.
Why agencies often get caught out
Creative work naturally looks like employment:
- People embedded into teams
- Fixed production schedules
- One main source of income
- Direction and oversight from account managers
- Long-running engagements
It’s easy to slip from "freelancer" to "staff member" without noticing, especially as projects scale.
Practical steps to protect your business
Here’s what I recommend to agencies:
1. Carry out an employment status review before hiring
A quick 10–15 minute check can save thousands later.
2. Use HMRC’s CEST tool — but don’t rely on it blindly
It’s a starting point, not the final word.
3. Make the contract match reality
If the contract says “substitution allowed” but your culture says “never”, HMRC will spot the mismatch.
4. Avoid having long-term freelancers behave like staff
If they need to be that integrated, they probably need to be on payroll.
5. Keep evidence
The reasoning behind your decision, notes from the assessment, and copies of the freelancer’s own business insurance, portfolio or multiple-client list.
6. Review long-standing freelancers annually
Working relationships evolve — so does their status.
The business upside of getting it right
It’s not just about avoiding trouble. Clear status decisions mean you can:
- Budget properly
- Avoid unexpected NIC liabilities
- Give your genuine freelancers creative freedom
- Protect your agency from employment tribunals
- Build a flexible, compliant talent pipeline
And, importantly, help the people you hire feel respected and properly treated.
Final thoughts
In the creative world, lines blur. But HMRC’s view on employment status doesn’t.
Getting the freelancer vs. employee question right is one of the simplest ways to protect your agency from painful tax surprises and to build a healthier, more transparent relationship with your team and contributors.
If you want help reviewing a freelancer arrangement or getting clarity on IR35, PAYE, or employment status, why not book a meeting.
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