What is the “Gig Economy”?
The way businesses operate in the digital age is changing. Companies are offering workers fluid options like remote working and flexi-time and, in this fast changing economy, businesses who have recognised this already are proving most ductile as the millennial workforce become core.
As an extension of this workers are furthermore opting to offer their talents to companies in a different way, providing their skills to businesses on a freelance or consultancy basis. This is called the Gig Economy.
Benefits of the “Gig Economy”
The Gig Economy gives companies a way to operate, in some instances, without the traditionally employed workforce; attracting talent to projects without keeping them for subsequent projects which may not be as suitable. In addition, it gives workers a way to vary their work life and experiences.
The Gig Economy has been dubbed so due to the nature of how work is undertaken. Much like a band performing one off concerts or “gigs”, in a “Gig Economy” consultants and freelancers work in numerous locations and for different audiences. Some “gigs” are longer than others with rolling contracts and some are short, one off, if you will, performances.
The Gig Economy allows freelancers and consultants to offer their services to a number of businesses at any one time. This might be much more appealing to, and sustainable for, a worker who enjoys project work as opposed to the long terms roles offered through fixed employment.
Furthermore, they may also benefit from a potentially higher income, fewer working hours and even more flexibility. The median income for consultants and freelancers in the UK is £43k and average working hours only 38.5 per week.
But the Gig Economy not only benefits workers. Employers contracting consultants or freelancers can expect more productivity and need not consider the burden of payroll and employers National Insurance Contributions as contractors manage their own tax and accounting liabilities.
Tax and Accounting Solutions for the Gig Economy
Both employers and Contractors should be aware of the IR35 rule, also known as, the disguised employee rule, which restricts companies employing workers on a contractor basis while they should be employees simply to avoid tax.
If contracts offered and services provided are within the rules of IR35 then the Gig Economy can be effective for both employers and contractors, however, efficient admin, tax and accounting solutions, such as cloud based bookkeeping and invoicing software, to manage the subsequent obligations of those choosing to operate in this way will have to be utilised by both.
Payment arrangements between company and contractor are not the same as those between employee and employer. While an employer will pay an employee at a set frequency, provide them with a payslip and manage their tax liabilities a company will pay a contractor when they receive an invoice from the contractor who will be operating under their own business entity be that a sole trader or a Ltd Company. The contractor is then responsible for paying tax on the amounts earned.
Accountants in London and The Midlands for Contractors
By utilising cloud based bookkeeping software and offering a knowledgeable, dedicated accountant to each consultant, freelancer and small business operating in the gig economy Cottons Chartered Accountants able to provide cost effective solutions and sound tax advice.
If you are a contractor and would like to understand the differences between operating as Sole Trader, how to set up a Ltd Company or what the tax liabilities are for Limited Companies, or perhaps you need information about VAT or would like us to explain IR35 then get in touch. Equally, if you’re a small business owner and would like to know more about working with contractors, then call us today.
Talk to us about our accounting packages for freelancers and consultants and small business too. Cottons Chartered Accountants are experienced accountants with offices in London, Northampton, Daventry and Rugby. Contact your local team today for a free consultation.