BREAKING DOWN IR35 FOR FREELANCERS

On Thursday 5th December, we hosted an IR35 briefing, focusing on the upcoming changes and how it will impact the employment status and finances of freelancers.

What is IR35 and when do the new rules come into effect?

IR35, now known as the “off-payroll working rules”, is an anti-tax avoidance legislation. The aim is to stop workers who act, or get treated like employees, from getting an unfair tax advantage by providing their services through a company, often called a Personal Service Company, or PSC for short. From April 2020, a major change is due to take effect for medium and large businesses that use PSC’s in the private sector. This will change the determination of the correct payment status for tax purposes; from the individual providing their services, to the 'end-client that uses them.

What are the considerations in determining IR35 status?

IR35 status is determined on an individual basis, considering both the written contract that is in place and the practical working arrangements. For a role to be assessed properly, consideration must be given to a number of key employment status factors, such as:

i. Personal Service – does the freelancer have to do the agreed work themselves, or can they provide someone else or sub-contract the work, if they choose to do so?

ii. Mutuality of obligation – is the client obliged to offer the freelancer work, and are they obliged to accept it? Does the client require the contractor to work specific hours or days for which they will always get paid?

iii. Control – To what extent can, or does the client control the work the freelancer undertakes? Does anybody work with the freelancer to influence the output of their work? Does the client provide training on how to do a job? Must a contractor abide by the client policies or dress-code

iv. Economic Reality – Is the freelancer at financial risk for non-performance or sub-standard work? Would they ever get paid, even if they don’t work? Could they ever negotiate a higher fee?

v. Part & parcel – is the Freelancer a completely independent business working on their own account? Are they considered to be part of the organisational structure of a business, necessary for the day-to-day functioning?

What is the process you would recommend freelancers start taking to prepare for the changes in IR35?

As the reform shifts liability for making assessments from the freelancer to the End-client, freelancers have typically already considered their IR35 status. When considering the new risks, there may be instances where clients change their stance and decide not to engage with any PSC’s.

In these instances, the freelancer can instead look at engaging with and working through an Umbrella company, or perhaps working on a self-employed ‘sole trader’ basis when appropriate. Freelancers trading through a PSC must be informed of the client’s determination - and the reasons for it - as clients may incorrectly deem a role to be ‘inside’ when it actually may be ‘outside’ the scope. Clients wishing to continue using highly-skilled freelancers by trading through a limited company should consider how they will make accurate determination as quickly as possible.

What common misconceptions can you debunk about IR35?

a) The biggest misconception is clients determining all their roles to be inside IR35 as a way to mitigate risk. This potentially opens clients up to costly challenges from freelancers who have been deemed to be inside, when in actual fact, the role would have been outside.

b) That IR35 applies to the self-employed...IR35 does not apply to the self-employed – they have their own tax legislation to comply with.

What is the core difference between being ‘inside’ or ‘outside’ of IR35 from April 2020?

If a freelancer can, or is being treated like an employee, then they will be ‘inside’ IR35 and must have PAYE operated on any payments made to their limited company. In addition, clients will need to add employers’ national insurance contributions and, if applicable, any apprenticeship levy due, therefore putting costs up. Freelancers genuinely operating like a business are considered ‘outside’ IR35 and can continue to be paid gross.

How will Major Players continue to support their clients and candidates in light of IR35 implications?

Major players are working with specialists to create a bespoke determination system that will be built on a role-based set of questions, rather than a single set of questions which cannot accurately determine the status of all roles.  Clients will be able to login to the platform and see the status of all their roles and suppliers, as well as any relevant freelancer information required. Major Players will be offering full role and worker audits for clients to show how roles and projects can be resourced most appropriately, to ensure access to the best talent at the best rates.

Major Players, as part of Major Collective, are launching a platform to all UK-based freelancers to assist with the sourcing of substitutes. Major Players are also partnering with an intermediary business to engage freelancers, regardless of employment status; therefore de-risking clients and providing the very best experience to freelancers.

We will also be hosting an IR35 event for employers on January 23rd 2020. Please click here to register your attendance.