Flexible working tax guidance

A recent Resolution Foundation report confirms that flexible working is a firm feature of the UK labour market, with 75% of employers using flexible contracts of one form or another, and for various reasons.

Did you know that, as well as lots of information for people in standard employment or self-employment, LITRG have specific guidance for those working in different flexible arrangements? We give you a flavour of what you can find on our website below.

Working through an online platform or app

If you earn extra cash by using one of the many available online platforms to, for example, offer rides, run errands, make deliveries, or do something else, then you are probably being treated as self-employed for tax purposes.

Although this is a developing area, it is important you are on top of your taxes from the outset, so that you don’t accidentally make any mistakes. The starting point is that the money you receive from such jobs is usually taxable, even if you are paid in cash or do it as a side job. If the total ‘gross’ amount before any fees, commissions or other expenses, comes in at £1,000 or less, then it may not be taxable due to the trading allowance.

Going beyond this, in our guidance, we tell you the main points you need to know around things like tax deductible expenses, tax allowances, record-keeping requirements and National Insurance contributions (NIC).

On our employment rights page, we discuss the ‘Uber’ employment rights status judgment and what it might mean for those in similar platform working positions.

Contracting

Until recently, there used to be a trend for people contracting or freelancing for an end client to set up a limited company to work through and to pay themselves in dividends. Doing this meant that they could pay less tax (and no National Insurance) than if they were just paid a salary and taxed under Pay As You Earn (PAYE).

The government thought that there was a loophole here and, by changing the ‘IR35’ rules, closed down the tax savings for most contractors from April 2021. We explain more about the situation in our guidance on working through a limited company/IR35.

If you are not caught by the IR35 rules and/or are thinking of setting up a limited company for another reason, we set out five questions to ask yourself before you do so. Limited companies are relatively cheap and easy to set up and may have certain benefits. But they can be difficult to run and expensive if things go wrong. You therefore need to think carefully before deciding to set one up!

Agency working

Obtaining temporary work via an agency can be a good option if you are struggling to find a permanent job or do not want to commit to one job for too long.

However, there are some complexities to do with your tax and employment law status that you should be aware of if you work through an agency. We tell you more in our guidance and offer some tips for managing your tax position.

Things can also get confusing because many agencies don’t like offering a PAYE payroll service for the people they find work assignments for and so they ask them to work through an umbrella company. An umbrella company is an employment business that takes on agency workers as its own employees. They act as an intermediary between a worker and their employment agency – the agency pays the umbrella company, who then pays the worker.

Some umbrella companies aren’t very transparent about what they do, but there is also a lot of misinformation which gives them a bad name – even the ones that take the welfare of their workers very seriously.

See our website for some clear and independent information (including a factsheet) to help you understand more about working through an umbrella company and some tips on what to look out for so you can avoid any problems.

Flexible arrangements involving fewer hours

When entering a flexible working arrangement involving fewer hours (for example going part time), your pay will probably be calculated on a pro-rata basis meaning you will receive less pay but also probably pay less tax.

However, lower hours and/or pay may have other less obvious implications too. You should consider carefully the effect that such a reduction may have on:

Your holiday entitlement 

Part time hours usually mean pro-rata holiday entitlement.

A workplace pension scheme you are contributing to 

As a part time worker, you might only pay pension contributions on the pay you actually earn – less pay means less contributions.

Entitlement to tax credits or universal credit

To be entitled to working tax credit (WTC) you need to be working a certain number of hours per week, depending on your age and personal circumstances.

Unlike WTC, you do not need to work a minimum number of hours to qualify for universal credit, but there may be a minimum amount that you are expected to earn.

Entitlement to state pension or other benefits

Workers who consistently earn below the National Insurance lower earnings limit (LEL) may fail to qualify for a range of contributory benefits such as contributory new style jobseeker's allowance and the state pension. In addition, entitlement to both statutory sick pay and statutory maternity pay are also dependent on whether earnings are above or below the LEL. The LEL is £123 per week in 2024/25.

Flexible arrangements involving home working

For arrangements involving home working, there are potential tax implications including:

• Whether you can get tax relief for homeworking related costs where these are met by your employer or incurred personally by you – see our guidance on working from home expenses for more information.
• Possible exposure of your home to business rates instead of council tax – see HMRC’s guidance on GOV.UK for more information.
• The potential impact on using part of the home for work on the eligibility for private residence relief for capital gains tax– see our guidance for more information.
• Whether you can get tax relief for your travel expenses. HMRC have recently added Section 3.39 to booklet 490 to explain the rules around claiming tax relief for travel between home and work for flexible and hybrid workers.

Finally, sometimes all you need is an internet connection and you can work from anywhere in the world. If your employer has asked or agreed that you can work remotely from abroad for a short period, there are several potential consequences for both you and your employer which we set out in our guidance on working remotely for a UK employer while overseas.