What is IR35?
IR35 is a piece of legislation in the 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 but 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 the drag on their business; and 62% said it was ‘regulation on freelance hiring.’
The majority (53%) of freelancers say they are “less confident” about their freelance operation 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, this will start to take place from April 6th, 2020. 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, the public sector contracting actually grew since the previous IR35 change. Freelance specialist expects 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.
For more information please visit:
HMRC: Help
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Story by Hubert Trinkunas, Head of Community at Wishu.io
