For the purpose of this guide, we’ll be referring to all freelance, contract and contingent workers as “freelancers”.
1. What is IR35?
IR35 is UK tax legislation. It's designed 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 an employer?
It means you’ll have to be aware of, and occasionally change, how you pay freelancers. From April 6th 2020, all freelance projects need to be tested to meet HMRC's IR35 regulation - so that freelancers are actually working as a project-based freelancer and not a disguised employee (which is ‘Inside’ IR35, often called a ‘permalancer’ or a long-term contractor with no set deliverables and employee-like benefits). ‘Inside’ means that freelancers will be taxed at source and pay NICs. ‘Outside’ 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 have to complete an IR35 assessment for every freelance project, and freelancers will have a few extra questions to answer as the project gets going. Worksome makes this super easy for everyone.
4. Does the regulation apply to all employers?
No. 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 your business has an annual turnover of less than £10.2million
- If your business has a balance sheet total of less than £5.1million
- If your business has less than 50 employees
- If you hire a freelancer who is not a UK resident (and does not pay UK tax)
For more on exemptions, head to the HMRC guidelines here.
5. What’s the risk for employers?
It can be pretty big. HMRC is keen to claw back any hidden tax deductions 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 will Worksome help with this?
We’ll make it simple. With Worksome, every project can be deemed ‘Inside’ or ‘Outside’ within minutes. Once placed, projects ‘Outside’ will be billed as usual, and ‘Inside’ incurs deductions of income tax and NICs to the freelancer’s paycheque to comply with UK law. Worksome handles all of the above, including payments to freelancers and recruiters.
7. ‘Inside’ or ‘Outside’... Does it really matter?
It will determine how much the freelancer will be paid after deductions. Projects determined as ‘Inside’ will see freelancers incur personal income tax deductions, ‘Outside’ and everyone can carry on as usual. Either way, Worksome does the maths for you, your freelancers and your recruiters, and it’s automatically added to contracts and all billing.
8. 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.
9. So what do I need to do?
Login or create a Company profile here. To guarantee and that your business is hiring freelancers in line with UK law, you need to run your freelancer contracts through Worksome's IR35 determination tool. Worksome will help manage your freelancers and recruitment suppliers, automate HMRC checks, contracts, timesheets, billing and payments. No risk, no stress, and way less paperwork for everyone involved.
10. ...and naturally the final question: How much does this cost?
Nothing extra. It’s UK law, so Worksome just wants to help employers work within the law.
If you are working at a company managing all hires with Worksome, the platform does charge fees on top of all hires. This not only helps you find the perfect freelancers but also determines your projects as ‘Inside IR35’ or ‘Outside IR35’. As an employer, you have to comply with the law with your own working practices too. You will always be aware of how much you’ll be paying freelancers before offering a contract. Worksome also insure you against any risk and manage the whole process from start to finish.