Contracting in the UK
The contracting of video game development is slowly gaining popularity. This is largly due to the average team size which has risen in recent years. Companies are finding it increasingly costly to maintain a full development team between projects.
The contracting of video game programming is still very ad-hoc, but art and particularly music are more established.
Contractors have had a rough time over the past few years in the UK, because of changes to tax rules. This has forced contractors to adopt a more business like approach in their dealings with companies.
In theory, anybody wanting to work as a contractor can start straight away. In practice though, there are a few things to sort out first.
Before taking on a contract we should set ourselves up in business. Contractors can't be employed by the client company directly so we need an employer even if that employer is ourself. But what determines our employment status is the terms of the contract we have with our client. So first we should decide how we want to work. Then we can create a contract to fit that format.
The usual formats for working as a contractor, in order of increased risk and reward, are:
Forming a company
The choice of legal structure for a business trades ease and flexibility against benefit and security. The benefits and costs for each option are constantly reviewed; to close loop holes, or exploit new technology. Currently the main options are:
This simple solution offers a minimum of paperwork and fuss. To set up as a Sole Trader, contact the Inland Revenue and register as self-employed.
A Sole Trader must keep accurate records showing expenses and payments and must fill in a self-assessment tax return at the end of each financial year.
A partnership is more complex than the Sole Trader structure but we can spread the costs and take home more of the profit.
This used to be a more popular option before new rules limited the amount of tax you could avoid. Forming a limited company is in many ways still the best choice for a contractor but the most complex of the options.
The Limited Liability Partnership (LLP) is a cross between a straight Partnership and a Limited Company.
- self-employed if you run your own business and bear the responsibility its success or failure
- employed if you work under the control of someone else and do not run the risks of having a business yourself
This puts freelance contractors in an ambiguous position. Whether we are considered self-employed or an employee for the puposes of tax, depends upon our contracts rather than our actual employment status.
One reason our considered status matters is due to the new laws that came into force in 2000. The sections of the new laws that apply to us are known collectively as IR35. If our contract falls under the IR35 rules we have to pay our tax and NIC's differently.
If the Inland Revenue considers us self-employed we have to notify them within 3 months of starting up or we could face a Â£100 fine.
A contract is not just what is written down but the sum of the agreement between the contractor and the client. This includes what we agree to verbally, and anything that we might reasonably imply. However, a contract does not include what we actually do while performing the contract.
For example, if the contract doesn't state that the contractor will work fixed hours, but the client and the contractor agree on fixed hours, then fixed hours forms part of the contract between them.
By contrast, if the contract states fixed hours, but the contractor regularly works outside of those hours (without the agreement of the client) then the contract is still considered as fixed hours.
Always bear these factors in mind when considering the terms of a contract.
Contract of service
Indicators of an employment contract are:
- the client controls how the contract is met;
- the client supplies expensive specialist equipment;
- the contractor takes no financial risk; and
- the contract is long term.
Commonly a game development contract will specify:
- the place of work;
- the hours of work;
- that the contractor cannot provide a substitute; and
- the order in which the contractor does tasks.
Expensive specialist equipment might include:
- professional studio software licenses
- art packages (£650 - £1,500)
- 3D packages (£2,000 - £7,500)
- programming suites (£800 - £2,800)
- hardware development kits (£10,000+)
- middleware licenses (£50,000+)
- licensed engine (£500,000+)
If we are contracted to work for a fixed rate or fixed time, but our pay is unrelated to our performance, then we are taking no financial risk in the contract. This suggests employment.
Although long term contracts suggest employment more strongly than short term ones, even a contract of a single day does not eliminate the possibility that the contract might be considered as employment.
Contract for services
One way to avoid a contract of service is to avoid any obligation within the contract to carry out work in person. It doesn't matter if the contractor does, or intends to do, all of the work personally; so long as there is no agreement (written, unwritten, or implied) within the contract.