IR35 legislation will change on 6th April 2021 after being deferred for a year due to Covid 19, but despite the deadline coming up quickly, many freelancers, contractors and businesses are still not fully ready for the changes.
It can feel like quite a complex subject and take a while to get your head around how the legislation will actually affect you. To help freelancers to be able to put their mind at rest over the upcoming changes we are going to explain what the implications are for you as a contractor or freelancer.
What is changing?
IR35 is nothing new and has been in force since April 2000.
The rules for determining whether a contractor is inside or outside IR35 are not changing , the main change is the responsibility for who makes the decisions on IR35 status and all the administration surrounding it. On 6th April 2021, the client will become the decision maker on the contractors IR35 status and who is responsible for deducting tax and National Insurance Contributions (NIC).
What is meant by inside vs outside IR35?
You will have by now heard or seen the terms ‘inside and outside IR35’ being used on freelance job adverts or projects..
If a project is considered to be inside IR35 this then means that as a freelancer and the work you do would classify you as an employee of the business (for tax purposes) instead of an intermediary. In this case it would then be the client's responsibility to make the correct tax and NIC deductions and submit these to HRMC
If a project is considered to be outside IR35 then you will be deemed (for tax purposes) to be offering your services as a genuine business and therefore paying the correct amount of taxes becomes your responsibility.
Will you be affected by the changes to IR35?
I work through an umbrella company or direct through a recruitment agency payroll, does this apply to me?
No, all PAYE and umbrella workers are unaffected by the changes to IR35.
I am a freelancer and work as a limited company do these changes apply to me?
Yes, this will affect you if the project / assignment that you are working on is considered to be inside IR35. One thing that you may want to consider for inside IR35 assignments is to work through a reputable umbrella company. If the service you offer is considered to be outside IR35 there will not be any changes.
HMRC has an IR35 index page that provides an overview of the legislation and a list of links to further resources. These links include:
HMRC has an online Employment Status Indicator (ESI) tool to help contractors get an instant outcome to if they are deemed inside or outside IR35. The tool is anonymous.
Occupations affected by IR35, This is an in depth list of all the professions that are affected by IR35.
The consequences of ignoring IR35, this explains in detail the consequences of not adhering to the IR35 changes.
Follow this link for what contractors can do if they disagree with HMRC finding them inside IR35. The Special Commissioners are now replaced by Tax Tribunals. If you are find yourself under an IR35 review we recommend that you find professional legal advice as soon as possible.
Guidance for limited company contractors and partnerships, and an explanation of how the deemed payment works for contractors definitely inside IR35
An IR35 deemed payment calculator that automatically downloads an Excel spreadsheet, and further advice on how to make a deemed payment calculation
A link to HMRC’s Employment Status section, this section has detailed information about the employment status of workers.
If you are unsure about how IR35 will affect you then you can always speak to one of our specialist consultants and they will be able to help with any concerns that you may have.