IR35 and what it means for you and your subbies

IR35 rules apply if a freelancer provides their services to a client through a personal service company (PSC), but would be classed as an employee if they were contracted directly.

The rules are intended to make sure that from April individuals, who HMRC say use their limited company status to pay themselves in dividends rather than PAYE, attract the same income tax and national insurance liabilities as employees.

Up until April IR35 liabilities rest with the PSCs, from April the liabilities fall upon their clients.

The upshot is that from April, companies will be responsible for deciding if IR35 applies to their contractors. In instances where they believe IR35 applies, the client must tax the freelancer like an employee. If they say IR35 does not apply, they run the risk of HMRC disagreeing and billing them for unpaid PAYE and NICs later.

The Government has already delayed the changes for 12 months and another delay seems unlikely. HMRC wrote to customers last month announcing it had relaunched its programme of support to help companies and contractors get ready for the new regime coming into force on 6 April 2021.

Hudson Contract is consulting with clients to ensure they are compliant with the new rules.

Ian Anfield, managing director of Hudson Contract, said: “In the best of times, businesses and freelancers found the HMRC guidance on IR35 difficult to follow, causing confusion and concern over liabilities.

“This has created a vacuum for bad advice with so-called HR specialists and umbrella organisations offering services which could lead to incorrect and potentially damaging determinations for companies and freelancers alike.

“Freelancers could find themselves in the worst of all possible worlds, paying employer and employee taxes but without any of the benefits of actually being employed, and their clients would face losing access to a valuable resource if they refuse the terms.

“We urge construction businesses and freelancers to contact Hudson and avoid blanket determinations or quick fixes if they want to safeguard their interests.”