- What is IR35?
IR35 is UK tax legislation. It's designed by HMRC to close a loophole in the tax system where the government believes freelancers are using a limited company structure to pay less tax.
2. What does IR35 mean for a freelancer?
It means you may have to change how you get paid. From April 6th 2020, all freelance projects need to be tested by clients to meet HMRC IR35 regulation - so that individuals are working as a project-based freelancer and not a ‘disguised employee’ (which is ‘Inside’ IR35, often called a ‘permalancer’ or long-term contractor with no set deliverables and employee-like benefits).
- ‘Inside IR35’ means that freelancers will have to pay tax at source and national insurance contributions (NICs)
- ’Outside IR35’ means that employees and freelancers can work on the project as usual
3. Sorry, whose ‘problem’ is this?
It’s the law, so it’s everyone’s problem. Employers will now have to complete an IR35 assessment for every freelance project, and freelancers (and/or their recruiters) have a few extra questions to answer too. With Worksome, it’s made super easy. Every project on the platform will be deemed ‘Inside' or ‘Outside’, based on data added by the employer. ‘Outside’ will be billed as usual, and ‘Inside’ incurs deductions of income tax and national insurance to comply with the law.
4. Does the regulation apply to all freelancers?
As with a lot of law, there are exemptions. Don’t ask us how HRMC came up with the numbers, but if any 2 of the following apply, then you may not have to worry about a thing.
- If you are a freelancer, and you are not a UK resident (you do not pay UK tax)
- If you work for a business with an annual turnover of less than £10.2million
- If you work for a business with has a balance sheet total of less than £5.1million
- If you work for a business with less than 50 employees
For more on these exemptions, head to the HMRC website guidelines here.
5. What’s the risk for freelancers?
It can be pretty big. HMRC is keen to claw back any tax that it thinks it’s owed from all parties. It could mean a long lawsuit, a lot of stress, and a hefty fine.
6. How can Worksome help freelancers?
Of course. All risk and worry can be avoided if you take necessary care to show that you’re compliant to the law. Worksome does this for you by determining your IR35 status for each project (based on data inputted to the platform by the employer), paying you correctly, and storing all of your data in the platform.
7. Is there anything freelancers can do to be ‘Outside’ of IR35?
No, it depends on the specifics of the project. Worksome will determine whether a project is ‘Inside’ (deduct tax) or ‘Outside’ (paid as usual) within the platform for you, though, so you’ll always know what’s what.
8. ‘Inside’ or ‘Outside’... Does it really matter?
Yes. It determines how much you’ll get paid. Projects determined as ‘Inside’, you’ll incur tax deductions of 20-25%, depending on your employer’s national insurance commitment. ‘Out’ and you carry on as you usually do. Either way, Worksome does the maths for you and your client, and it’s automatically added to your contract and all billing.
eg. If your Day Rate is £500 per day, you’ll likely have to pay an extra 20-25% in tax and NICs
9. Can I challenge a project deemed ‘Inside IR35’?
Yes. If you have been determined ‘Inside IR35’, you can challenge the decision. You will be able to submit your dispute within the Worksome platform, who work with an independent 3rd party who will manually contact you and support you. Legally, you have 45 days to receive a final decision, but through Worksome we will provide this within an estimated 48 hours.
10. What’s the alternative to managing this process with Worksome?
More paperwork, more stress and higher risk. HMRC has a “CEST” tool, containing lots of questions to be manually answered for every single freelance project. Luckily, Worksome uses the data produced by both employers and freelancers in the hiring process to answer the majority of these without you having to lift a finger. Technology, eh.
11. So what do I need to do?
Login or create a Freelancer profile here. Whether you’re set up as a limited company, sole trader or get paid PAYE, to guarantee that you are working and getting paid in line with UK law, you should run your contracts through the platform. Worksome will automate HMRC checks on all jobs, manage contracts, timesheets, billing and payments. No risk, no stress, and way less paperwork for everyone involved.
12. ...and naturally the final question: How much does this cost?
Nothing. To be totally transparent, we charge employers a hiring fee, which not only helps find you but also determines the project as ‘Inside IR35’ or ‘Outside IR35’. As a freelancer, you will then be aware of how you’ll be paid before taking a job, we’ll insure you against any risk and pay you as soon as the employer pays Worksome for every bill you submit via the platform.
If you are a freelancer, and you are not a UK resident (you do not pay UK tax)