If you’re self-employed, you’re very likely to have heard the term IR35 bandied about. You might also be aware that new rules are coming into force in April 2020.
We’re not about to go into a huge amount of detail regarding what IR35 is in this article. You can find out more about IR35, and if it applies to you here. But in short, it’s a tax law which determines whether you have an employer-employee relationship with the company which pays you (the ‘end-client’), or a client-freelancer relationship.
Otherwise known as ‘off-payroll working rules’, the whole point of this legislation is to clamp down on ‘disguised employment’, as opposed to truly independent workers.
If you’re deemed to be ‘outside IR35’, then your work is considered to be of a contractual nature, so you continue to pay your tax and National Insurance contributions (NICs) in the way you usually do. However, if it’s deemed that you’re ‘inside IR35’, then the HMRC takes the view that you’re actually employed in the conventional fashion. This is likely to have repercussions, which we’ll discuss below.
What we’re going to focus on here is six specific things that – as a self-employed professional – you’ll need to know about April’s changes in the law.
Before April 2020, organisations working in the public sector had to determine whether contractors fell within IR35, but contractors working for private companies had to do it themselves.
But from April, public-sector rules apply across the board. In other words, private-sector companies (including most third-sector companies and charities) have to determine if workers are off-payroll or otherwise.
This means it’ll be down to the firm you’re contracted to in order to determine your employment status. It also means they may end up assessing and deducting your tax.
If you’re a sole trader or work under the Construction Industry Scheme (CIS), heave a sigh of relief now… This doesn’t apply to you.
Likewise, if your company falls into the government’s ‘small company’ bracket, you’ll also be exempt.
However, if you’re a contractor and you provide your services via a limited company, then it’s important to work out whether these rules may apply to you.
As an independent worker, you’ll be more than familiar with being paid gross. However, if you’re deemed to be inside IR35, the agency you’re working for will have to make income-tax deductions (PAYE) and NICs.
In other words, your pay will be diminished. This could ultimately leave you out of pocket, or at very least upset your regular cashflow.
In addition, any investigation could prove stressful and time-consuming. Definitely best avoided.
When determining whether you fall in or out of IR35, HMRC will be taking into account the actual nature of your work, rather than what’s written in your contract.
If, for example, you have limited control of when you’re required to turn up for work - or you’re not free to take on other work, HMRC may well conclude that you’re on the books.
Even if you have multiple contracts, each instance will be decided on a case-by-case basis. It seems there may be no guarantee of falling outside of IR35 even where several clients exist.
If you’re regarded to be inside IR35, and you don’t feel that’s fair, it is possible to contest the decision. A couple of things though… Firstly, as your end-client makes the determination ultimately, you may have little say in the outcome.
Secondly, in the event of an appeal, the end-client has 45 days to respond and give reasons for its decision. So it’s likely to take time. And time in which you may be paid less than usual.
Further appeals are possible, but – as you can probably imagine – this is likely to drag out over the course of months, and expend a huge amount of time and effort.
At this point, you may be worried about what IR35 may mean for you – especially if you’ve been freelancing with the same company for a significant amount of time. But please don’t stress! Having a good accountant on-side can potentially save you a good whack of money, and certainly a load of headache.
Here at Mazuma, we’re happy to chat you through any concerns and IR35 woes you might have. For sound advice on keeping your tax affairs in order, and peace-of-mind guidance, feel free to get in touch with us today.
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