The IR35 reprieve is over – what freelancers should do now

The government delayed introducing IR35 tax reforms for freelancers amid the Covid-19 chaos. But they come into effect early next month.

Freelancers and contractors got a last-minute reprieve from the IR35 reforms a year ago, when the government opted to delay introducing them on 5 April 2020 amid the Covid-19 chaos. But the reprieve was only temporary, and for many businesses, concern is now growing about the potential impact of the changes when they come into effect early next month.

The reforms make businesses that use freelancers and contractors responsible for determining their tax status – whether they really are self-employed contractors, or whether they are effectively employees that should be paid through the PAYE tax system. Many freelancers and contractors have received lengthy questionnaires from clients in recent weeks, and fear they could face a loss of income or higher tax bills following the changes.

Research published by the Association of Independent Professionals and the Self-Employed (IPSE) this week suggested as many as 50% of members would stop contracting in the UK from 5 April onwards, unless they can secure contracts unchanged from their current arrangements.

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This will require clients to certify them as outside the scope of the IR35 rules, but the tests for determining this are subjective rather than definitive. Broadly, HM Revenue & Customs is focused on working relationships. Where contractors and freelancers retain control over how and when they work, where they can delegate the work, and where the client is not obliged to give them work, they are likely to escape IR35. But all clients have to make their own assessments of each freelancer and contractor they use. Those that have not heard from clients may now need to make inquiries or risk an unexpected tax surprise. In IPSE’s research, one in four contractors said their clients were either uncertain or had made no indication of what they would do in response to the IR35 changes.

David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.