IR35 is a piece of legislation in Income Tax (Earnings and Pensions). IR35 was introduced to ensure that contractors, which work in the same way as employees, pay broadly the same taxes as actual employees.
If a contractor is operating through an intermediary, such as a limited company, and for that intermediary they would be an employee of their client, IR35 kicks in.
According to the IPSE’s index, 65% of freelancers blamed “government tax policy related to freelancing” as a drag on their business, and 62% saying it was a move towards “regulation on freelance hiring.”
53% of freelancers say they are “less confident” about their freelancer operations over the coming 12 months according to IPSE’s confidence index.
𝗪𝗵𝗲𝗻 𝘄𝗶𝗹𝗹 𝘁𝗵𝗲 𝗰𝗵𝗮𝗻𝗴𝗲 𝘁𝗮𝗸𝗲 𝗲𝗳𝗳𝗲𝗰𝘁?
The new IR35 rules will come into effect on April 6th, 2020.
𝗪𝗵𝗼 𝗱𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲𝘀 𝗜𝗥𝟯𝟱 𝘀𝘁𝗮𝘁𝘂𝘀?
It is the responsibility of the end-client to assess the employment status of the freelancer whether it falls inside or outside IR35. The status will be provided by the end-client.
𝗧𝗵𝗲 𝗰𝗹𝗶𝗲𝗻𝘁 𝗵𝗮𝘀 𝗱𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲𝗱 𝘁𝗵𝗲 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁 𝗶𝘀 𝗶𝗻𝘀𝗶𝗱𝗲 𝗜𝗥𝟯𝟱, 𝘄𝗵𝗮𝘁 𝗵𝗮𝗽𝗽𝗲𝗻𝘀 𝗻𝗲𝘅𝘁?
PAYE deductions including income tax and NICs will be made from your agreed pay rate and this will affect your take-home pay.
𝗧𝗵𝗲 𝗰𝗹𝗶𝗲𝗻𝘁 𝗵𝗮𝘀 𝗱𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲𝗱 𝘁𝗵𝗲 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁 𝗶𝘀 𝗼𝘂𝘁𝘀𝗶𝗱𝗲 𝗜𝗥𝟯𝟱, 𝘄𝗵𝗮𝘁 𝗵𝗮𝗽𝗽𝗲𝗻𝘀 𝗻𝗲𝘅𝘁?
If it’s determined the contract is outside IR35, you will be paid the agreed rate without PAYE deductions.
𝗛𝗼𝘄 𝗱𝗼 𝗰𝗹𝗶𝗲𝗻𝘁𝘀 𝗺𝗮𝗸𝗲 𝗮𝗻 𝗜𝗥𝟯𝟱 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻?
Most clients will use the HMRC designed tool called ‘Check Employment Status for Tax’ (CEST). When the end-client does all the checks, they need to inform the freelancer why they have determined whether the assignment falls inside or outside IR35.
𝗪𝗵𝗮𝘁 𝗶𝗳 𝗜 𝗱𝗶𝘀𝗮𝗴𝗿𝗲𝗲 𝘄𝗶𝘁𝗵 𝗮 𝗰𝗹𝗶𝗲𝗻𝘁’𝘀 𝗜𝗥𝟯𝟱 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻?
If you disagree with an IR35 decision, it is possible to appeal their decision. The end-client will have 45 days to respond and can either change their decision, providing the freelancer with a new statement, or stand by their original determination and give an explanation.
𝗦𝗵𝗼𝗿𝘁-𝘁𝗲𝗿𝗺 𝗱𝗲𝗰𝗹𝗶𝗻𝗲, 𝗟𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝗴𝗿𝗼𝘄𝘁𝗵?
Local authorities realised they could not complete key projects such as commercial and digital work without the aid of specialist external skill-sets. As a result, public sector contracting actually grew since the previous IR35 change. Freelance specialists expect the same trajectory to happen for this change.
The freelancing community reflects much bigger trends in the wider economy. Brexit may be ‘done’ for now, but with the impending changes to IR35 and the continuing sluggishness of the global economy, there may still be more gloom to come. Following IPSE assessments, 71% of freelancers say their costs are set to increase over the next 12 months. Predicting that rate of pay will decrease by a small yet unhelpful 1.1%.
With the increased confidence in the wider economy by freelancers, the confidence in the industry seems to slumped down with the new changes that are happening in April 2020. There is still time for the government to list to the addressed concerns and make changes, before any damage is done.