If you’ve worked with contractors or freelancers you may know of “IR35”. These are rules set by HMRC, the UK’s Tax Authority, that determine whether someone is what they call a “hidden employee”. This is where a company uses a contractor to work when it could be done by a normal employee.
There are many reasons companies prefer to use contractors to regular employees. A popular misconception is it’s to avoid tax, which led to HMRC introducing the IR35 rules in the first place. While they’ve been around for many years, recently the taxman has had a crackdown. They introduced new rules under the IR35 banner into the public sector, and they’re now set to be used in the private sector too. For companies that want to use contractors or freelancers this might cause problems. It could lead to hefty tax bills if they’re found to have used contractors as regular employees.
A review of the rules is not being delivered as promised during the 2019 General Election. Government was expected to review whether IR35 is appropriate. Instead it will focus on how to implement it.
This has had a cooling effect on the freelancer market. Companies have become more nervous about engaging with freelancers out of fear they will fall foul. There is a lot of uncertainty, some hysteria and a little certainty.
I’ve already taken steps to ensure my clients can continue to enjoy my freelance services and remain outside of IR35. These come down to a combination of company structures, contracts and working practices.
Clients commission my agency – Dalmeny Close Ltd – to provide a specific service to attain a specific goal. How that goal is met is down to Dalmeny Close to decide. For our freelance clients we rarely – if ever – visit physical sites. All the tools, techniques and know-how is owned by Dalmeny Close. We don’t use client email addresses, software or other tools. Our relationship is one of client and consultant.
I also have in place a contingency plan to move Dalmeny Close into the EU. Contracting with a non-UK company to deliver services may offer even greater protection and reassurance.
IR35 has already had an effect on innovation and creativity. I’ve had conversations with potential clients who have felt an impact. They’re feeling uncertain about how or if they can bring much needed skills in to optimise their investments. Yet again investment is being delayed while business seeks certainty.
If you are concerned about IR35 and its effect on your design and content plans, talk to me. I can’t offer you specific advice, but I can offer contracts and structures that are specifically designed to reduce the likelihood the taxman will come knocking in the years ahead.
Page updated 26th January 2020.
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