June 14th, 2018
So far, 2018 has been a big year for the controversial tax law known as ‘IR35’. In recent months we’ve seen four different but highly publicised rulings on it, such as MDCM Ltd v Revenue & Customs and Crista Ackroyd Media Ltd v Revenue & Customs. In the wake of these rulings, many freelancers, contractors and self-employed people are being forced to ask themselves whether they could be at risk of investigation over this complex and contentious tax law.
So, what is IR35?
Put simply, IR35 is a tax law that allows HMRC to treat fees paid to a limited company as if they were an employee salary. It was introduced to stop ‘disguised employment’, where employers save themselves money by paying employees as if they were limited companies, allowing them to avoid costs like sick pay, holiday pay and Employers’ National Insurance Contributions.
What is the problem for the self-employed?
Nobody wants companies to evade tax. The trouble is that IR35 unfairly affects the smallest companies: independent professionals and the self-employed. Because of the complexity of IR35, it is often misused, leading numerous freelancers, consultants, non-executive directors and other people who legitimately supply services through limited companies to be wrongly accused of ‘disguised employment’.
What’s worse is that IR35 investigations can be long, intrusive and extremely costly. As we saw in the case of MDCM Ltd v Revenue & Customs, the original determination by HMRC was made in 2016, but the appeal only finally went through in recent months.
IR35 cases can even cause major reputational damage. Little wonder then that so many freelancers end up expending large amounts of time and money protecting themselves from the risk of an IR35 investigation.
How can the self-employed protect themselves?
Often the best solutions are the simplest, and that’s certainly true of IR35 protection. Really the best means of protection are staying informed and getting the right cover:
- Staying informed: The Association of Independent Professionals and the Self-Employed (IPSE) provide a free Guide to IR35, as well as bi-monthly magazines, fortnightly newsletters, and updates to keep the self-employed community informed of any changes that may affect them.
- Cover: tax investigation insurance is perhaps the most direct form of protection from IR35.
- Finding the right services: professional advice and assistance can go a long way – from an accountant with IR35 experience, for example. IPSE offers discounted access to providers who can cover freelancers for up to and including all tax, national insurance, interest and – for the rare cases when it’s needed – penalties.
- Contract reviews: an excellent way for freelancers to protect themselves is getting expert advice on whether their contract fits within IR35 regulations.
- Asking questions: because IR35 is so complex, freelancers need to be ready to ask experienced professionals when they’re uncertain about anything. IPSE gives its members access to tax, contract, and legal helplines, as well as the online freelancing community.