![IR35: New Law Looks To Shake Up The Freelance Industry](https://www.openbusinesscouncil.org/wp-content/uploads/2019/08/ir35compliant.png)
New IR35 business tax is coming up, and many self-employed people need to start thinking about how the new tax laws might affect their earnings. In April 2020, the law aims to stop ‘disguised employment’ and means that those freelancers who have structured their business as a personal service company or Limited company will change the way they pay their tax.
The new rules, coming into force April 2020, will force private sector companies to be responsible for deciding if a freelancer or contractor’s employment status is correct – rather than the individual deciding it themselves. When this law, which has was reformed in 2017, comes into force, the clients of these freelancers will make the decision about whether the freelancer will be taxed at source or paid gross.
IR35 could reduce a freelance worker’s net income by 25%, but many recruiters do not realise how it will affect their business. YunoJuno found that 43% of senior personnel didn’t know how IR35 would affect their business and 42% were unaware of the fines for non-compliance.
Nick Woodward, CEO of ETZ Payments, said: “When hiring freelancers many employers are unaware of the details that go into paying them. Invoices often come in a variety of forms and gig economy employees are often paid inconsistently and late. With modern technology, businesses should be able to keep on top of their freelance employee’s payments so they can be paid on time and without error. If businesses want to retain and attract the best talent, they should educate themselves around IR35 and ensure that they have robust and efficient timesheet technology.”
Simply put, IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name. If a contractor is operating through an intermediary, such as a limited company, and but for that intermediary they would be an employee of their client, IR35 kicks in.
If the contractor’s contract is in the public sector, it’s up to the engager (the contractor’s client) to determine whether IR35 applies. If it does, the engager will place the contractor onto their payroll and will deduct income tax and National Insurance before paying the contractor.
If, on the the other hand, the contractor’s contract is in the private sector, IR35 requires the intermediary to make an extra payment to compensate for the additional tax and NI that HMRC would have received on an equivalent employee’s wages.
![Hernaldo Turrillo](https://www.openbusinesscouncil.org/wp-content/uploads/2017/04/hernaldo_turrillo.jpg)
Hernaldo Turrillo is a writer and author specialised in innovation, AI, DLT, SMEs, trading, investing and new trends in technology and business. He has been working for ztudium group since 2017. He is the editor of openbusinesscouncil.org, tradersdna.com, hedgethink.com, and writes regularly for intelligenthq.com, socialmediacouncil.eu. Hernaldo was born in Spain and finally settled in London, United Kingdom, after a few years of personal growth. Hernaldo finished his Journalism bachelor degree in the University of Seville, Spain, and began working as reporter in the newspaper, Europa Sur, writing about Politics and Society. He also worked as community manager and marketing advisor in Los Barrios, Spain. Innovation, technology, politics and economy are his main interests, with special focus on new trends and ethical projects. He enjoys finding himself getting lost in words, explaining what he understands from the world and helping others. Besides a journalist, he is also a thinker and proactive in digital transformation strategies. Knowledge and ideas have no limits.