The Handshake Isn't the Test: A 25-Minute Freelancer Status Audit for UK Micro-Businesses

You have found someone brilliant. They reply quickly, they know the job, and they are happy to invoice you. So you send a brief, agree a rate, and get going. Nothing about that feels risky.

But here is the quiet bit that catches micro-businesses out: calling someone self-employed does not make them self-employed. HMRC and employment tribunals look at how the relationship actually works — the day-to-day reality, not the label on the invoice. Get the basics right early and you avoid a messy, expensive conversation later.

This is a 25-minute sprint, not a legal deep dive. It is designed for the first time you bring in a freelancer or subcontractor, or the moment you realise the arrangement has drifted. Work through it calmly, fix one gap at a time, and keep a record of what you checked.

Minutes 0–5: Pull the paper trail together

Start by gathering what you already have. That might be an email confirming the rate, a WhatsApp thread, a one-page agreement, an invoice, and a copy of their insurance certificate. Put it all in one folder — digital is fine.

Now ask a simple question: does anything in writing actually describe the relationship, or does it just describe the task? A good freelancer agreement does not need to be forty pages. It does need to say what is being delivered, the fee, how and when it will be invoiced, and — importantly — that the freelancer is responsible for their own tax and National Insurance.

If the only evidence is a handshake and a bank transfer, that is your first gap. Not a disaster, but a gap.

Minutes 5–12: Check who is really in control

Control is one of the clearest signals. Ask yourself who decides:

• when the work gets done
• where it gets done
• how it gets done
• who supervises the work
• whether the freelancer can turn down future work without penalty

A genuinely self-employed subcontractor usually has real say over their own schedule and method. If you are setting their hours, requiring them to be at your premises every day, and managing them like a member of staff, the label starts to wobble.

That does not mean you cannot set a deadline or ask for updates. Clients do that with freelancers all the time. The test is whether you are directing the person or commissioning the outcome.

Minutes 12–17: Look at substitution and financial risk

Two more practical checks help clarify the picture.

First, substitution. Can the freelancer send someone else to do the work if they are ill or unavailable? If the answer is always no — and you would refuse anyone else — that looks more like employment.

Second, financial risk. Does the freelancer use their own equipment? Do they quote for a job rather than bill by the hour for whatever you ask? Would they have to fix poor work at their own cost? Genuine self-employment usually carries some commercial risk. If you cover all the costs, provide all the kit, and guarantee a set number of hours each week, the arrangement is edging towards employment.

Also check mutuality of obligation. Are you obliged to offer ongoing work, and are they obliged to accept it? A series of separate jobs is different from a permanent, rolling commitment.

HMRC has a free Check Employment Status for Tax tool, often called CEST. It is not the final word, but it is a sensible sense-check if you are unsure. Use it as part of your evidence, not instead of thinking.

Minutes 17–21: Insurance and record-keeping

This is the part micro-businesses often skip. Ask for a copy of the freelancer's insurance — typically public liability, and professional indemnity if they give advice or deliver professional services. Keep it on file with the date you received it. If they cannot provide cover, decide whether the work is low-risk enough to proceed and note your reasoning.

Then check your own records. You should be able to show:

• the freelancer's name, address and unique taxpayer reference where relevant
• invoices that match the agreed scope
• confirmation that they are responsible for their own tax
• the date you checked their status and what you found

You do not need a compliance department. You need a folder and a habit. Ten minutes at the start saves hours of guesswork later.

Minutes 21–25: Fix the smallest gap first

Do not try to solve everything today. Pick the one gap that would cause the most confusion if HMRC or a tribunal asked about it next month. Usually that is one of three things: no written agreement, unclear control, or missing insurance evidence.

Send a short, friendly email. Something like: 'Before we go further, can we confirm a couple of practical bits in writing — scope, fee, and that you are responsible for your own tax and insurance? I have attached a one-page note.' That is not confrontational. It is good housekeeping.

When to get proper advice

If the person works full-time for you, uses your equipment, follows your rota, and cannot send anyone else, the label 'self-employed' may not hold. At that point, take advice from an accountant or employment law specialist. It is far cheaper than a retrospective tax bill or a tribunal claim.

For most micro-businesses, though, the fix is simpler: write it down, check the reality, keep the evidence, and review it when the arrangement changes. The handshake is not the test. The working relationship is.