For the purpose of this guide, we’ll be referring to all freelance, contract and contingent workers as “external workers” or "workers"
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​A Guide to IR35
​What is IR35?
​What do the IR35 reforms mean for an employer?
​So why is this important?
​Do the reforms apply to all employers?
​What's the risk for employers?
​What is a Statement of Work and can it get around IR35?
​'Inside' or 'Outside' - Does it really matter?
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​IR35 & Worksome
​How will Worksome help with IR35?
​Does Worksome insure the IR35 determinations made in the platform?
​What's the alternative to managing this process with Worksome?
​So what do I need to do?
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IR35 is UK tax legislation. It's been around for two decades and is designed to make sure external workers are paying taxes.

Using an ‘IR35 determination’ for every contract, HMRC wants to identify external workers who would be employed for tax purposes were it not for their use of an intermediary, normally their own limited company, in the supply of their service.

It means you’ll have to be aware of, and occasionally change, how you pay external workers. From April 6th 2021, all freelance projects that are engaged through a Limited Company need to be tested against the IR35 regulations - so that external workers are actually working as project-based workers and not as disguised employees (or ‘Inside IR35', often called a ‘permalancer’ or a long-term contractor with no set deliverables and employee-like benefits). The IR35 reforms are not relevant to Sole Traders, or workers operating through an Umbrella company.

‘Inside IR35’ means that external workers will need to be employed for tax purposes and have PAYE and National Insurance Contributions (NICs) taken at source.

‘Outside IR35’ means that employees and external workers can work on the project as usual and be paid gross.

It’s the law, so it’s quite important everyone complies. Employers will have to complete an IR35 assessment for every freelance project with an Ltd company worker, and workers will have a few extra questions to answer as the project gets going. It's another step in the process, but Worksome makes this super easy for everyone.

No. HRMC state that if any two of the following apply, then your company has to comply:

For more on who this applies to, head to the HMRC guidelines here.

It can be pretty big. HMRC is keen to claw back any unpaid tax revenue that it thinks it’s owed from all parties. It could mean a long lawsuit, a lot of stress, and a hefty fine.

A Statement of Work (SoW) will alter who is deemed the end client of the freelance worker and since the client has the responsibility towards determining the worker's IR35 status there are some relevant benefits to this approach. Should the entity delivering the SoW be a small company, as per the Companies Act 2006, the 2021 IR35 reforms are irrelevant resulting in the end clients being absolved from determining a worker's employment status. However, it should be noted that in this instance IR35 must still be considered but the worker and their Limited company would be wholly responsible.
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But SoW’s are often misunderstood making their impact and existence immaterial, which would alter the position of the end client to being the company above the hypothetical SoW.
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HMRC recognise an SoW as a ‘contracted-out service’, as opposed to a ‘supply of labour’. HMRC talk about this in greater detail through their employment status manual 10010. It is a complex area of law, so proper legal advice should be sought, but setting delivery standards, indemnification and penalties for service level failures plus a total disregard to who will be used to deliver the service are the basic principles of a contracted-out service. Whereas, if you seek a specific individual or require a supplier to provide you with a number of individuals to deliver a project this would be a supply of labour, which would be the case even if the principles of a SoW have been followed.
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Lastly, the engagement history of the SoW owner should be understood and considered to ensure everything is taken into account. If, for instance, a worker had a history of engaging end clients through their Limited company in the traditional supply of labour method, questions will be asked as to why the company is now engaged in SoW’s. That isn’t to say that this switch cannot happen but there should be material evidence to support such a move. If it transpired that this switch was simply to circumvent the IR35 reforms, then we can assume that HMRC would look to engage the Targeted Anti-Avoidance Regulations they introduced as part of the reforms.
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It will determine how much the worker will be paid after deductions. Projects determined as ‘Inside’ will see workers incur personal income tax deductions at source. But if ‘Outside’, your company can pay the worker a gross amount (without tax deductions) as usual. Either way, Worksome manages the payments for your company, your workers and your staffing agencies, and it’s automatically added to contracts and all billing in-platform.
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We’ll make it simple. With Worksome, every project can be deemed ‘Inside IR35’ or ‘Outside IR35’ within minutes.

When posting a project or creating a contract in Worksome, questions to make the IR35 determination will be answered by both you (the hiring company) and the worker - all in the Worksome platform. Worksome does not answer these questions for either party. Check out our guide here to walk you through creating an IR35 booking in Worksome.

Once started, projects ‘Outside IR35’ will be billed as usual, and ‘Inside IR35’ incurs deductions of income tax and NICs to the worker's paycheque to comply with UK law. Worksome handles all of the above, including payments to workers and staffing agencies.

Yes. All status determinations made post-6th April under the new reforms are underwritten by a Fee Payer policy that protects against future HMRC investigation and/or additional tax liabilities. This means that projects deemed 'Outside IR35' from the questions answered by both parties using Worksome will be covered, should HMRC ever challenge the payments.

More paperwork, more stress and higher risk. HMRC has a Check Employment Status for Tax (CEST) tool, containing lots of questions to be manually answered for each freelance project. Sadly, in around 20% of cases, CEST is unable to determine whether an assignment is Inside or Outside of IR35. Luckily, Worksome uses the data produced by both employers and workers in the hiring process to answer the majority of these without you having to lift a finger. Technology, eh?

To guarantee that your business is hiring external workers in line with UK law, you need to run your external worker contracts through an IR35 determination.

Worksome will help manage your external workers and staffing agencies, and automate HMRC checks, contracts, timesheets, billing and payments. No risk, no stress, and way less paperwork for everyone involved.
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If you would like to find out more about how to determine your projects as ‘Inside IR35’ or ‘Outside IR35’, please email our team at hello@worksome.com.