The government has expressed their view that it is unfair for a self-employed person to be paying less tax and National Insurance than a permanent employee who earns the same.
Some people may agree with this (usually those in permanent employment) but it is unfair to compare self-employed people to permanent employees.
Freelancers don’t get pensions or holiday pay, they don’t get their National Insurance paid for them nor do they receive sick pay, maternity leave or paternity leave and they are constantly under the pressure of an uncertain level of monthly income. Whereas, permanent employees benefit from all of the above plus they know exactly how much income is coming in each month.
That said, IR35 reform was introduced to address the tax loss to the Treasury through disguised employment and would be deemed unfair if the reform was only consigned to the public sector. As a result it is now looking increasingly likely the IR35 reform will be introduced to the private sector which could be as early as April 2019.
Here are 5 things that you can consider to prepare:
1 – Take the HMRC IR35 Test beforehand
Don’t assume you will pass the IR35 test. Take the test yourself beforehand and be sure of your status in the eyes of the HMRC before you submit an official test at your clients. From the result you can consult financial and legal advice with a more informed point of view.
2 – Consult your accountant
We cannot advise you regarding your financial status and the tax implications of being deemed to be inside IR35, but your accountant should be able to.
3 – Review your current working practices
Contractors can change contracts and working practices to make it more likely they will pass the test. If you plan to do this you need to review and make any changes now as you may not be able to make any changes with an agency come next April. Whatever changes you implement would need to be weighted towards passing the IR35 test. As with any changes made to contracts and agreements it is best to take legal advice to ensure the changes you plan to make are sound in the eyes of the law. It would be counter productive to make changes to pass the IR35 test only for you to contravene another law or regulation in the process.
4 – Join an Umbrella Company
A large proportion of freelancers working in the public sector who failed the test in 2017 joined an Umbrella Company. This will be a likely option for private sector contractors to opt for as well.
5 – Insure yourself
If you are subject to a tax enquiry it could take a long time and cost you a lot of money. A Tax Enquiry and Legal Expenses policy will provide you with cover for representation costs in the event of a HMRC investigation and will provide you access to free helplines to guide you in IR35 issues, tax and legal advice, business law and counselling. Call 0333 321 1403 further information.