Guest blog by Fiona McKee, Head of Human Resources at SD Worx UK & Ireland
Freelancers have been hitting the headlines in recent months due to the Government tightening tax legislation in what is the likely to be the biggest compliance race since GDPR. But, what does it mean for non-permanent workers?
The issue at hand
The issue all boils down to a tax framework referred to as IR35 and the chancellor’s attempts to reform it. The legislation is intended to highlight freelancers who are avoiding taxes but by operating under “disguised employment”. Historically, the Treasury has paid bigger attention to IR35 in the public sector. The NHS, for example, has experienced considerable issues as a result of contractors walking out on public sector projects. In turn, this has left them under-resourced.
The Government is however about to turn its attention to the private sector. Starting with large companies, the government is targeting non-permanent workers that can be seen to be an employee, or close to an employee, but using their role as ‘contractor’ to pay less tax. This could be through using family members as directors to their business or using payment dividends for lower salaries. If you are working the same way as an employee, you are in effect an employee but using your business to pay less tax.
Understanding the difference between freelancing and working as a permanent employee is critical, particularly as freelancers are on the rise, and many are not planning on returning to permanent positions. In fact, recent research from SD Worx suggests that four out of ten British freelancers plan to remain freelance long-term. This means that a huge number of people are likely to be affected by IR35. For most freelancers, this is through no fault of their own.
If freelancers are working with an organisation, the boundaries between permanent staff and non-permanent can be blurred. And with 42% of UK companies not making a distinction between permanent employees and freelancers in their HR policies, it’s easy to see why it can be confusing. However, it falls on both contractors and organisations to prepare and establish boundaries to ensure both parties are compliant.
Don’t fall short
If freelancers are to protect themselves from this legislation they need to prove they are self-employed and not permanent staff – this is where the challenge lies. Freelancers must ensure their arrangements with their organisation are legally compatible with IR35. This isn’t just as simple as registering as a freelancer but working and acting like one too. It may sound all too obvious, but working with an organisation on a regular basis can cause non-permanent staff to behave like permanent employees.
Preparation is essential when it comes to hitting the compliance deadline. Both sides must take account for their actions and respect each other’s terms. The key to complying is a common. Freelancers must make legally sure their arrangement is really a business one in its own right, and not dependent on the organisation they are working with. This includes creating separate Terms and Conditions and implementing them, from establishing separate working hours, not conceding to a set uniform, owning your own equipment and if possible, sending another employee to meet a client so it’s not just one person from a business doing so. Freelancers must be clear if they are providing a service or a person, after all providing specialist experience or consultancy is more legitimate than just offering an extra pair of hands for a business.