Introduction to this document

Exchange of letters

During routine compliance visits HMRC has asked companies for the names and addresses of any freelancers they use. Protect yourself with an exchange of letters between your company and the freelancer.

Proving you’ve considered status

HMRC would be delighted to be able to reclassify your consultants/freelancers as your employees, as it could then insist that PAYE and NI is due on the total amount paid to them. One way to prevent this problem is to implement an Exchange of Letters with the freelancer on the practical aspects of their independence. This proves you both have seriously considered this assignment and genuinely regard the freelancer as independent and not an employee. Your letter and the reply from the contractor should include references to the fact that: (1) they have an office at home; (2) they bring their personal laptop computer in to the office when they do work for you; (3) they have a desktop computer at home that they use for their other clients; (4) they hold business insurance; (5) they have a business identity (business stationery, business cards and company-headed invoices); and (6) they have a business bank account through which you intend to settle their invoices.