Last year the government transferred the burden of determining IR35 status from the freelancer to public sector bodies. As a result, we have seen many more freelancers being taxed as employees and some public body sector ‘employers’ treating all freelancers under the regime. The IR35 regime refers to a budget press notice from when the tax provision was introduced 15 years ago. It has never quite worked as the government wished. The concern HMRC have is that the freelancer is using a company to get around tax and national insurance obligations and this has been a major issue with some well-known TV personalities.
It had been widely expected that this change would be extended to all private sector employers following a recent consultation and the only question was whether this would be in April 2019 or April 2020. As this change is likely to be fairly contentious with Conservative MPs and given that Philip Hammond had to retreat on a previous tax change to the self-employed, he has pushed the change out to April 2020 and is limiting the change to larger private sector employers only.
There is justification for delaying implementation beyond political expediency. Treating company shareholders as being directly employed results in a number of legal fictions for tax and company law purposes. These are still bedding in and the correct approach is the subject of some debate amongst the accountancy profession.
Freelancers working for private sector employers after April 2020 can probably expect to see a lot of their customers concerned about their employment status and could even automatically apply the IR35 regime. In advance of April 2020, it would be sensible to review the working arrangements to see what action, if any, should be taken.