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Unfortunately, this question is right up there with ‘how long is a piece of string?’. The short answer is that it all really depends on a whole host of variables, such as:
- The reason the work wasn’t completed
- The kind of relationship you have with the client
- External influential factors which neither party can do much about
In most cases a commonsense approach is probably what’s needed, but freelancing isn’t always so straightforward.
So, let’s take a look at some examples of what happens when a project doesn’t work out, and what this means for billing. In some cases, charging the client might be appropriate, but there might be times when invoicing is off the cards.
When is it ok to charge for unfinished work?
In the following instances you’re most probably well within your rights to still charge a client, even if the project doesn’t quite go to plan.
If the reason it didn’t work out wasn’t your fault
We’ve all had that client where, no matter what we do, things just don’t work. If a freelance project doesn’t work out and it’s the clients’ fault, then you can definitely still charge them for your work!
A (surprisingly common) example of this is a personal trainer who has been working with a client to help them lose weight in the run-up to their wedding or a holiday. The personal trainer can only do so much to support the client, and ultimately, if they don’t follow the plan their PT provides, they won’t hit their goal weight. But that doesn’t mean they don’t have to pay the bill.
When the client swoops in with a change of plan
This one’s a bit trickier. If you and your client agree the brief, and then they change their mind, it depends on the timing.
- If you haven’t started the work then unfortunately, you can’t really charge anything for your services (unless you have terms and conditions which say otherwise)
- However if you’re part-way through something then it’s perfectly reasonable to request payment for the work you’ve done so far, or to compensate you for any materials bought specifically for that job.
If the client changes their mind about work you’ve completed
Our clients hire us for the expertise we bring, so there are very likely to be times that you find yourself on a job where the client isn’t entirely sure what they want the finished project to look like. It’s why it’s so crucial to get the brief right!
If you’ve already completed the work and it nails every point on the brief, but then the client changes what they need, then yes – they should absolutely pay you for the work carried out so far.
It’s up to them if they want to issue you with a brand-new brief for a refreshed direction and pay you for that too.
Examples of situations where you probably can’t charge
On the flip side, there are likely to be times where you either straight-up can’t charge the client, or you probably shouldn’t.
This is an important distinction to make because there could be times when billing the client simply isn’t an option at all, but at other times going ahead might be ethically or professionally questionable (and therefore best avoided).
Illness or other personal circumstances
If you’ve agreed to a project but then fall ill or become unable to fulfill the work as a result of other personal circumstances, such as the death of someone close, the client shouldn’t be expected to pay.
However, there are grey areas around this topic too. If your illness or personal circumstances means you have to pause or delay a project, but the client is happy for you to resume or start the work at a later date, then you can probably still charge as normal.
If the project doesn’t go ahead
In the world of business and project planning, not everything runs according to plan. Unfortunately, even after agreeing a brief, a project can still draw to a sudden halt.
As frustrating as this is, you can’t charge a client if you haven’t actually executed any work unless you have an agreement in place that says otherwise.
If you’ve spent time attending meetings or briefings, there might still be room to discuss invoicing to compensate for this. That will be between you and your client.
If you miss crucial deadlines
If the client is forced to deviate from their project strategy as a result of you missing deadlines or not producing work to the standard they expect, your right to bill them is on shaky ground, particularly if you’re looking at charging full price.
If the client must get somebody else to step in as a result of any of your own shortcomings, you will need to come to an agreement as they might want you to reimburse them for this inconvenience.
Of course, there’s a very easy way to ensure this scenario doesn’t arise and that’s to meet deadlines, produce great work, and manage client expectations. Did we mention how important it is to get the brief right?!
The benefits of client contracts and agreements
All of the scenarios above are general examples but ones you might come across when working as a freelancer. There’s rarely a definitive answer as to whether or not you can still charge for a project that doesn’t work out, so it pays to protect yourself as much as possible. One of the best ways to do this is by putting a contract or agreement in place with your client before you start any work for them.
This will also help you in situations that neither you nor your client could foresee or prevent. The Covid pandemic is a classic example of this, causing many clients and their contractors to abandon work.
In a contract or agreement, both parties can detail any insurance cover they have which might impact payment for projects or work that doesn’t take place.
An official document like this is also the perfect place to implement a milestone payment plan that you and your client can agree on. This means that rather than getting paid once all the work has been completed, you can decide on several milestone payment dates along the way.
Not only will this give you peace of mind when it comes to your cash flow, the client might also appreciate the breakdown of costs. Win, win!
Want to know more? Check out our Freelancer Hub for all things freelancing!
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If you’re planning to work as a sub-contractor in the construction industry, then it’s worth knowing that most construction-based trades will fall under the Construction Industry Scheme. CIS affects how you get paid by the contractor who hires you, so this blog takes a closer look at what CIS is and what you need to do.
A quick introduction to CIS tax
CIS was introduced in 1971 to ensure that tax is collected from payments made to subcontractors in the construction industry. With a few exceptions, any business operating in the construction industry will be classed as a “contractor” under CIS and will need to register.
If you are a freelancer carrying out work for a contractor that is registered with CIS, you will be classed as a “sub-contractor” and will also fall within the rules of CIS. There are a few exceptions to this, for both contractors and sub-contractors. The main exceptions are:
- Architects and surveyors
- Scaffolding hire (with no labour)
- Carpet fitting
- Material delivery
- Work on construction sites that is obviously not related to construction, such as catering and facilities management
What does CIS mean for contractors and sub-contractors?
A contractor that is registered with CIS must deduct a fixed amount from the payments they make to sub-contractors. The amount they deduct depends on whether the sub-contractor is registered or not:
- Registered: The contractor deducts 20% from the subcontractor’s payment, and submits it to HMRC.
- Not registered: 30% deduction
- Gross Payment Status: 0% deduction
The deduction is paid directly to HMRC and is treated as an advance payment of the subcontractor’s tax and National Insurance Contributions (NIC).
Does CIS depend on how I work?
CIS applies to sole traders, partnerships, and limited companies, both as contractors and sub-contractors.
So, if you are in a trade or profession that falls within CIS, and you carry out work for a CIS registered contractor, you are automatically within CIS.
How CIS works in practice
Verification
Before you carry out work for a contractor, they will need to verify you with HMRC. They’ll need your Unique Taxpayer Reference number (UTR) and NI number if you’re a sole trader or in a partnership, or your company UTR if you’re a limited company.
It’s important to give the contractor the correct information, including the exact trading name you’ve registered with HMRC. If the details are incorrect, you will be classed as unregistered and pay the higher deduction of 30% – ouch!
After they submit the request for verification, HMRC will tell the contractor how much to deduct. You can still carry out work for the contractor without being registered for CIS but will pay 10% more in deductions. So, it pays to register, and can make managing your cash flow easier.
If you do pay the 30% rate, you’ll be able to reclaim any overpaid tax as a rebate once you submit your Self Assessment. So, it also pays to get that in sooner rather than later!
Deductions
The contractor submits a return to HMRC once a month and you receive a statement or payslip showing the gross payment and amount that’s been deducted.
This is probably not the amount you will actually owe in tax and NICs as, unlike the PAYE system for employees, the deduction is a flat rate and doesn’t take into account your personal allowance or any other earnings you might receive. The personal allowance is the amount of income you can earn before starting to pay tax on it.
When you fill in your Self Assessment tax return you’ll enter the amount of deductions paid under CIS, and HMRC calculates whether you owe more tax and NIC, or are due a refund.
Gross Payment Status under CIS
As a sub-contractor, you can apply for Gross Payment Status if your business passes several tests which are mainly:
- Your business does construction work in the UK (or provides labour for it)
- A good track-record of paying tax and NIC on time
- Turnover of at least £30,000 per year, excluding VAT and cost of materials
- In the case of partnerships or limited companies, then it’s at least £30,000 turnover for each partner or director, or £100,000 for the whole partnership or company
HMRC will confirm if you have Gross Payment Status, and you will receive payments without deductions. You will then have to show the gross payments on your Self Assessment or company tax return, and pay the appropriate tax and National Insurnace on it.
Responsibilities under CIS
It’s important to know who is responsible for what under CIS. Firstly, you need to decide whether you are a contractor or sub-contractor. It sounds obvious, but you can be both! For example, if you are engaged by a contractor to carry out a particular job, then you are acting as a sub-contractor. But if, in order to do the job, you then take on sub-contractors yourself you are now also acting as a contractor.
Contractor’s responsibilities
Whilst you can work as a sub-contractor without registering with CIS, you have a legal obligation to register if you act as a contractor.
The contractor must verify the sub-contractor’s status before work commences and then they are responsible for deducting the correct amount, filing a monthly return, and paying the deduction to HMRC. They must also provide a monthly statement or payslip showing pay and deductions.
Contractors must also keep records of all payments and deductions for sub-contractors for at least 3 years, along with various other reporting responsibilities regarding changes in their business.
Sub-contractor’s responsibilities
As a sub-contractor, your main responsibility is to provide accurate information for the verification process, and to maintain records of payments received and deductions made. This information will be on the monthly statement or payslip you receive.
Whilst you do not legally have to register for CIS, it makes good sense to register as you’ll pay 10% less in deductions.
It’s also important that you understand that CIS is not a replacement for the Pay as You Earn (PAYE) system for employees. You must account for tax yourself under Self Assessment if you’re self-employed, or a company tax return if you’re a limited company.
Accounting for tax as a freelancer under CIS
It’s common to overpay tax under CIS because the deductions don’t take into account your personal tax allowance, or any tax relief that you can claim on allowable expenses .
If you’re owed a refund, the sooner you submit your self-assessment return, the sooner you’ll receive what you are due so it’s worth doing it early. And if that all seems like a headache, why not get a professional to do it for you.
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