The new tax year is fast approaching and of course, established freelancers will not be phased at all by that and those with accountants in place, even less so. But this year, there’s a new consideration…IR35.
IR35 has been around for a while in the Public Sector and after a Covid-induced delay it comes into effect for the Private sector on 6th April 2021. The aim of the legislation is to ensure that contractors (e.g. freelancers) who work like employees for companies but are paid via an intermediary (e.g. an Agency), pay broadly the same tax and NI as an employee would. And from 6th April it will be the responsibility of the company receiving services to ensure that their contractors are outside IR35.
Put simply, it’s a complex set of rules that can massively affect the tax bill and incur huge fines for freelancers and the companies they work for if they’re not careful. This means that companies who use freelancers and agencies will want to review and possibly amend their existing contracts to ensure IR35 compliance. Freelance marketers can expect at the very least that existing and new contracts will come under new scrutiny by clients. Here at The Hive, we’re marketers, not accountants and we’d never profess to advise on taxation or legislation, but, as ever, we know someone who can. So if any of the following questions are worrying you – you’re in the right place:
How should I respond when clients want to do an IR35 check?
Am I at risk if I employ freelancers?
Is it safe to leave IR35 for my client to address?
How will IR35 affect me?
What is IR35?
How will IR35 affect my existing contract?
What are the common pitfalls with contracts?
What can I do to stay outside IR35?
What is off-payroll tax? and should I pay it?
Hive members will be delighted to know that we’ve arranged for our very own friendly accountants, Ann Bibby and Charlotte Toemaes from Ellacotts to join our very first Hive Live session which will be all about IR35 and will help to answer these and any other IR35 related concerns. Taking place at 11am on Friday 26th Feb 2021 they’ll give an overview of what the IR35 changes mean and how they’ll affect freelance marketers, their clients and their end customers. We’ll open the Hive Live virtual floor to give Hive members an opportunity to ask any IR35 questions, clarify any concerns and gather information to support robust contract plans for the future.
In the meantime, here’s some useful “bitesize” information that we’ve found which will help with your understanding;
IR35 refers to the UKs anti-avoidance tax legislation designed to tax 'disguised' employment at a rate similar to employment. "Disguised employees" means workers who receive payments from a client via an intermediary, for example, their own limited company, and whose relationship with their client means that, had they been paid directly, they would be employees of the client. Deciphering whether this applies to you and your business can be confusing and there are 3 key areas that the HMRC generally use when reviewing a person’s/company’s IR35 status.
The 3 main tests - in brief
Right of substitution – you need to consider whether you can you replace yourself with a substitute to complete a project without contravening the contract.
Control – think about how much control your client has over how, when or where you work.
Mutuality of obligation (commonly known as MOO) –– weigh up whether your contract allows you to take on projects from other clients simultaneously.
When thinking about IR35 you need to ask yourself:
Are you in? or out?
If you’re outside IR35 you’re fine. If you’re inside IR35 you’re a disguised employee and HMRC will be asking some questions. Be prepared.
Watch our on demand event IR35 – Are you Ready – to find out more and ensure your compliance.