Something that is rife in the world of business advice is the claim that if you are the director of a company, for instance a CIC or a limited company, you can invoice the company as a self-employed freelancer for your work and avoid all those annoying little extra costs like employers' National Insurance or pension contributions.
This is not the case.
Despite an apparent abundance of accountants merrily signing off on company accounts that are spending lots of money on paying freelancers and have no employees at all, the rules are very clear.
The government websites make repeated references to this fact, such as "Directors are classed as employees and pay National Insurance on annual income from salary and bonuses over £12,570", and also sets out the requirements for an office holder (for example a board member, company director or trustee) to not be classed as an employee, including "their duties are minimal, and are only those required under the relevant statute, constitution or trust deed, and they do not get a salary or any other form of regular payment for their services".
The clearest explanation I've found comes from the Low Income Tax Reform Group, and I encourage everyone to read this carefully. In particular, I'd highlight this quote:
Note that for company work not related to the role of director, in theory, it may be possible for you to do this on a self-employed basis, by being hired by your own company to carry out the work on its behalf. But this would only usually happen if you had some real specialist skill unrelated to the company's normal business and you provide this to other businesses as well as your own, for example. This would be very unusual, particularly for those on relatively modest incomes, therefore we do not consider the possibility any further in our guidance.
The example I like to use is that if you are the director of a therapeutic wellbeing CIC that provides massages and other treatments, and you get paid for giving massages, you should be an employee of the CIC. If you also happen to be a qualified plumber who works with a number of other clients, and the sink in the therapy room clogs, you can invoice your CIC for your plumbing services to fix the sink.
There are people who sell workshops and courses claiming that it is not only acceptable but encouraged for CIC directors to invoice as self-employed freelancers or, even worse, to work through a limited company to provide services to the CIC, but this is bad advice and puts you as an individual and the CIC as an organisation at risk of fines and debts from HMRC, circumvents the purpose of the CIC's asset lock, and would not be approved of by grant funders. It is normal and expected that any grant application you make that includes salary payments (for instance for project staff) would include the relevant NI and pension contributions, and anyone who is telling you otherwise is either misinformed or dishonest.
This is particularly important if the CIC director/employee is also claiming Universal Credit, because invoicing the CIC as a self-employed freelancer or through a limited company entirely removes the protection that I secured for us by ensuring that CIC directors are not caught by Regulation 77 of the Universal Credit regulations. It is almost always more beneficial to be classed as an employee by the DWP than as self-employed if you're claiming Universal Credit. And it happens to also be what HMRC require. Truly, put yourself on payroll. The minimal extra cost (which can be non-existent if you're not earning above the various thresholds for pensions and NI contributions) is far less than the fines you're risking by doing it wrong.