Despite the pandemic, it seems the government is still planning to introduce the controversial IR35 measure to the private sector beginning in April 2021. 

So what is it? What is IR35? In short, it’s legislation aiming to ensure that companies and individuals are not exploiting the tax system by working as a limited company when, in reality, they’re operating as an employee. 

So, as an employer, what do you need to do?

If your company qualifies, you will need to make a ‘determination’ about every freelance position you have as to whether or not it falls within or outside of IR35. If it is inside, you will need to pay that person PAYE, just like any other employee. But, if the role sits outside of IR35 Regulations, then you can pay that freelancer however you wish. It is essential to keep in mind that the ROLE is assessed, not the individual filling that role.

How to determine the role? Where does your role fall?

HMRC sets out three key feature to decide if a role is affected by IR35 these are:

1. Mutuality of Obligation - is there an obligation to do a certain amount of work and an obligation for the employer to pay for that work/time regardless of the result?

2. Substitution - In theory, can someone come as a replacement if the original contractor is unavailable? 

3. Supervision, Direction & Control - Are you directed on how to do the work or restricted in when or where without a legal justification (for example GDPR or security)

There are other lesser considerations, but these are the major 3. If you are not obligated to provide and pay a freelancer, theoretically they could be substituted if unavailable, and they’re not if the studio and can work whichever hours they want and how they want, then that position would be outside of IR35.

Many companies are offering solutions to cover IR35, but the cheapest is to use the government IR35 checker (found here) although not perfect it should help and be relatively easy to use.

Can you change the determination?

Well, yes, actually. If you want a position to be either inside or outside, you can change some of the aspects of the role to meet that demand. For example, if you were hoping they would be in the studio X number of hours per day or week; this can be removed or changed to available for face to face project updates. Alternatively, you can negotiate project fees rather than working to a day rate. 

Remember that if you have a freelancer move from one project to another, you will likely need a new statement of work to show that this is not now indefinite employment (better to be on the safe side).

Could your business be exempt from IR35?

As mentioned in my previous article (found here), small companies are exempt from IR35; you do not need to make any changes to how you employ freelancers. To be classed as a small business, you will need to meet 2 of the following criteria:

• Less than 50 Employees

• Less than £10.2m turnover

• Less than £5.6m in assets

Your classification will then only change when you submit your yearly accounts, so something to keep an eye on and keep in mind. 

This is obviously a very simplified version of IR35. If you have specific questions or concerns about implementing IR35 into your business, then we’d be more than happy to help. I expect we will have a couple of bumpy months after April, but it will become easier as time passes, as with most new legislation.