Are you worried that new tax laws are a serious risk to your business? Nigel Sarbutts, of client/freelancer matchmaking platform The PR Cavalry, argues that clarifying contractual terms with clients will go a long way to avoiding the stress of IR35.
April sees the introduction of IR35 rule changes which affect the tax and employment position of thousands of freelancers with private sector clients who fit two of the following criteria
- Turnover over £10.2 million
- A balance sheet of more than £5.1 million
- More than 50 employees
It is undoubtedly a pain, it’s currently a mess and a lot of people are thinking the sky is going to fall in. It isn’t.
But freelancers shouldn’t hope it goes away or see IR35 changes as all threat. There is an opportunity to see IR35 as a reason to introduce changes to your contract that benefit you and your client, by clarifying areas of working practice.
Before going further, please note that THIS IS NOT LEGAL ADVICE. You should examine the HMRC guidance and if in doubt seek advice from your accountant. A good source of general information is the IPSE website.
At the heart of whether your client and HMRC think you are an off-payroll employee is the CEST tool. CEST stands for Check Employment Status For Tax
It’s a series of questions that determine whether or not your way of working with a client is truly one of self-employment or whether you should be treated as being an employee on the payroll.
In my opinion (along with many others) it is very badly designed and the nature of PR freelancing does not fit into many of its tests, creating many grey areas and I fear a lot of clients will conclude wrongly that they are affected.
These areas are where the opportunity for freelancers (and clients) lies. By clarifying terms in a contract which address the vagueness of CEST and its incompatibility with PR practice, many freelancers and clients who feel they are in the ‘may or may not be affected’ category can feel more certain that the determination on whether a freelancer is or is not covered by IR35 becomes easier.
These changes should not be contrived to wriggle out of IR35, they should reflect actual PR practice and be valuable to both parties in creating certainty. But that certainty can help both parties answer CEST in a way that benefits them.
Can You Avoid IR35?
No, but it does not mean that you will be affected, or that you cannot take steps to avoid being wrongly caught up by IR35.
CEST is far too detailed to describe in this article but far greater detail can be found on my blog which details how IR35 affects PR freelancers.
One test which will interest CIPR members is whether the freelancer is regarded as being an expert with greater knowledge of the process than the hirer. In HMRC’s words:
“Some workers are engaged for their specialist skill and judgement. The hirer may not even fully understand what they do. Where the nature of the profession, or the work, is such that it is not appropriate for the hirer to direct the way in which to the work is done, this would fall within the ‘Not relevant, it is highly skilled work’ category in CEST.”
A CIPR member is demonstrating their adherence to professional standards beyond the control of either them or their client. Commitment to CPD and Chartered status add to that picture of expertise and independence.
A contract which contains wording to the effect that the client cannot control HOW the services are to be provided fails the test of employment.
Another critical test is mutuality of obligation – is the client obliged to provide work and is the freelancer obliged to offer it?
Inserting a clause to the effect that “The client is not obliged to offer ongoing contracts or work to [company/name] nor is the [company/name} obliged to accept such contracts or work if offered” establishes that there is no mutuality of obligation.
In summary, freelancers need to grasp the detail of IR35 and approach their clients with positive, practical steps around re-wording contracts to clarify normal PR practice to avoid both parties falling foul of changes that have been badly handled and don’t really grasp how PR works.