Getting your head around the changes may appear complicated at first, but to help put your mind at ease we spoke with our freelance consultant Ellie about what the changes mean for you as a freelancer.
What is changing?
IR35 is nothing new and has been in force since April 2000.
The tests for determining the IR35 status are not changing, but what will change is the responsibility for who decides IR35 status and the administration around this. From April 6th 2021, it will become the responsibility of the client to make the IR35 status decision around who deducts tax and National Insurance Contributions (NIC).
What is meant by inside vs outside IR35?
You may have heard the terms ‘inside and outside IR35’ being used in relation to freelance projects.
If an assignment is deemed to be inside IR35 this means that as a freelancer the service you would deliver would classify you (for tax purposes) as an employee of the business rather than an intermediary. In this instance it will be the responsibility of the client/fee payer to make tax and NIC deductions, reporting these to HMRC.
If an assignment is deemed to be outside IR35 then you will be considered (for tax purposes) to be operating as a genuine business and therefore responsible for paying your own taxes, generally through a PSC/Ltd company.
I work through an umbrella company, does this apply to me?
No, all PAYE and umbrella workers are unaffected by the changes to IR35.
I work as a limited company do these changes apply to me?
Yes the changes will affect you if your assignment is deemed inside IR35. Our intro to IR35 document goes into more detail about how this may impact you and the various routes you or a client may wish to take when falling inside the IR35 changes.
For inside IR35 assignments, you may want to consider working through an umbrella company.
What does IR35 mean for small businesses?
Small businesses are exempt from the changes coming into effect April 6th 2021.
But what makes a business a small business? The definition in sections 382 and 383 of the Companies Act 2006 states that a small business is a company which, in a particular tax year meets two or more of the following conditions:
Having a turnover of not more than £10.2 million.
Having a balance sheet total of not more than £5.1 million.
Having no more than 50 employees.
This is just a brief overview into the changes and for a deeper look into how IR35 may impact you as a freelancer or business owner, our free IR35 introduction PDF provides more detailed information, including cost comparisons and the key things to look our for.
