‘IR35’* the name of the legislation around how contractors and freelancers are paid has been mentioned in hushed tones for some time and from April 6 2020 will be implemented by HMRC resulting in major changes for thousands across the UK.
The reasons for IR35 are two-fold:
IR35 will impact contractors working in high value sectors like tech, pharma and engineering, many of whom until now have been operating as limited companies, paying less tax than permanent employees and being exempt from paying national insurance.
From April 6th, contractors and freelancers will no longer be able to decide how to classify themselves e.g. as limited companies, and it will be up to the businesses who employ them to decide how they are classified. Given the penalties which may be imposed by HMRC on companies who get it wrong, they will err on the side of caution.
According to HMRC, this change will bring in £3.1bn in additional tax revenues between 2020 and 2024.
IR35 may force the hand of contractors and freelancers who fall under its remit to consider becoming permanent employees, resulting in auto enrolment to the government’s pension scheme bringing a further much needed cash injection into the government purse.
Will I be impacted?
In short, if a contractor is employed by a company with turnover of less than £10.5 million, they won’t be impacted by this legislation. Similarly, if the company employs fewer than 50 people they are unlikely to be impacted. However, according to ‘Dinghy’, a specialist freelance insurance provider, “if your working hours are decided by someone else and you can be told what tasks you’re working on, where you’ll be working, and how you should work, then you may well fall under the ‘disguised employee’ banner, and therefore could be seen as being inside IR35.”
IR35 is an extremely complex piece of legislation and can’t be simplified in one blog, however HMRC has provided the following tool for contractors to check their employment status for tax https://www.gov.uk/guidance/check-employment-status-for-tax
*Fun Fact: IR 35 is actually the name of the press release which was issued in 2000 announcing the introduction of anti-avoidance legislation, IR of course standing for inland revenue, the former name for HMRC.