Whether you’re a freelancer or business owner, you may or may not have heard the term IR35, and if you have, you may not know exactly what it is however it’s important that you know exactly what it is and the effect it could have on you and your business. Today we’re going to run through exactly what IR35 is and what changes it is bringing along with it.
IR35 itself comprises two different sets of legislation that concern tax that is being brought into effect in 2020. These two legislations have been introduced to stop tax avoidance by both workers and the companies hiring them. Meaning that they are going to be concerning both freelancers and limited companies.
IR35 itself has been around since 2005 but has only applied specifically to the public sector. It is only this year that it is being introduced into the private sector which means it’s going to affect a lot more businesses than it did before. However, it’s important to note, if you’re a genuine limited company or freelancer, there is no need to worry about the introduction of IR35 into your sector. You do however need to take time to understand exactly what the legislation means so that you know that you’re adhering to it all and not accidentally breaching one of its rules.
When IR35 is introduced into the private sector, case managers from HMRC will perform due diligence and investigations into companies or businesses they suspect of breaching the rules. They will look into the exact nature of the working relationship between both the business and the worker to create what is called a ‘notional contract’. This contract is then put under scrutiny by an inspector who will assess whether IR35 applies to them or whether it doesn’t.
To undertake this assessment, they look at the three main ‘tests of employment’ that are:-
- What degree of control does the business have over the worker concerning when and where that worker works?
- If the worker isn’t available for work, is the work put on hold or is a replacement worker sent in their place?
- If the company is obliged to offer work to the worker, are they obliged to accept it?
That’s why if you’re a freelancer and one or more of your clients are limited companies, you’re going to want to consult with them regarding these upcoming changes to ensure that they’re going to be compliant with the changes on their side so that your working relationship can continue uninterrupted.
The case could arise whereby the HMRC might actually deem you to be an employee even if you’re a freelancer. However, don’t worry. You do have the right to an appeal against this decision. This appeal will be handled by an independent tribunal rather than HMRC themselves. The review panel will take in a range of factors to determine whether the correct decision was in fact made by HMRC initially.
If you want to know more about the IR35 legislation, whether it affects you and how you and your business can prepare for its upcoming introduction, feel free to speak to a member of the team here at DK Accounting. We’ll be happy to have a chat with you to better establish where your business lies and whether it will be affected by IR35.