IR35 What is happening next?
Are you self-employed as a Freelancer or Contractor? Then we expect you are already aware of some of the changes that will affect how you work in the Private sector from April.
We have put together a helpful summary covering how the changes may affect the private sector in regard to “off-payroll working reforms” to give some guidance one what to do next.
1. The proposed changes mean that you need to think about your working practices regularly to help you remain compliant. The way the government has structured this means that pretty much all the responsibility for determining your IR35 status will be with the end client or recruitment agency. However, you still have responsibility as the Contractor or Freelancer, to make sure the determination is accurate and updated when it needs to be.
2. The key aim of the new legislation is to identify businesses that blur the lines of employees and contractors/freelancers and manipulate the system to put themselves in a position where they pay less tax than what they are supposed to. These tend to be large organisations that have kept oncontractors much longer than they are supposed to.
3. So, what does this really mean? It means that the freelancer/contractors’ IR35 status is now the responsibility of the end employer or middle agency. They will need to prove that they have assessed that the freelancer/contractor they are hiring is truly a freelancer/contractor and not just being labelled that way, so they do not have to pay the additional tax and national insurance.
4. The good news is that this does not apply to small companies and is targeted to medium to large organisations in the private sector and working with a small organisation outside of the public sector will be exempt from the new rules and they can still determine IR35 status in the way they did before.
5. How is a small company defined - HMRC defines a small company based on the guidelines set out by the Companies Act 2006, which describes three main criteria:
- Annual turnover must not exceed £10.2 million.
- Assets outlined on the balance sheet must not total more than £5.1 million.
- No more than 50 people employed by the company.
Any business that exceeds the above will be required to produce a status determination and supporting reasons for their outcome to all parties in the chain.
6. What this means in real terms is that a company/agency can no longer make a blanket decision of their IR35 status, they must complete a status determination for every freelance/contract position they hire for. The determination will be produced via a new ‘client-led status determination process’. The full details of what this process will include are yet to be published.
The key thing to remember about all of this is that as the freelancer/contractor you are able to question the status given to you directly with the client. Should you feel a decision has been made incorrectly there are many accountants, umbrella companies and solicitors who can accurately identify the working practices classed as outside IR35 and can offer advice if you need it.