Unless you’ve been hiding under a rock, you’ll have heard about the looming tax changes for freelance workers in the UK.
As of 6th April 2020, companies will be under the watchful eye of HMRC as they make in-depth assessments of whether contractors are working ‘inside’ or ‘outside’ IR35. With the long-awaited deadline fast approaching, we’re interested to see how the job market reacts to the new legislation.
Join us as we take a closer look into what IR35 means for the job market and how both workers and employers can prepare for the year ahead.
What Does IR35 mean for Contractors?
The first concern to iron out is that the new tax legislation won’t affect all contractors.
The changes are designed to create a more obvious distinction between employees and ad hoc contractors. For years, many freelancers have dodged hefty ‘pay as you earn’ (PAYE) employment contracts to cut their tax bill.
If you’re a freelance contractor with a handful of clients on your books, there’s a good chance HMRC will deem you to be working ‘outside’ IR35, and you’ll carry on with business as usual.
However, if a significant chunk of your earnings comes from a single client and you reap similar benefits to fully-fledged employees, things might have to change as of April. IR35 deters contractors from diverting their payroll through a registered company, paying themselves a reduced salary and taking tax-free payments through their dividends allowance.
While there’s no clear-cut line to define ‘inside’ and ‘outside’ IR35, HMRC will make a holistic assessment of your working status to determine your individual position.
What Happens If I’m ‘Inside’ IR35?
If you or your client deems your working status as ‘inside’ IR35, you’re left with one of two options.
- Adjust your professional relationship with your client to shift your working status from ‘inside’ to ‘outside’ IR35. This could involve reducing your hours, giving up an office space, letting go of certain responsibilities, adjusting the terms in your contract, or a combination of the above.
- Opt for a full-fledged employment contract. While your net income could take a hit from PAYE tax obligations, becoming an employee also comes with a host of amazing benefits which you don’t get as a contractor.
Benefits of Becoming an Employee
Whether it’s receiving pension contributions, maternity/paternity leave, enjoying paid holidays or not having to process pesky invoices, IR35 isn’t necessarily a bad thing.
Let’s take a look into the key advantages of full-time or part-time employment over contracting.
Paid Holiday & Sick Leave
If you’re working as a contractor, taking a break from work to enjoy a well-deserved holiday can be hard on the bank. Not only do you have to set money aside to pay for your holiday, but you also miss out on pay for every day you're not working.
Similarly, contractors are often under pressure to keep working through illness and personal issues as they can’t afford to take time off work.
However, as an employee, you’ll have the freedom to take stress-free breaks when you need them most to get you back on your feet and working at the top of your game.
Pension Contribution Matching
When you’re solely responsible for handling your finances, it takes a lot of discipline and forethought to consciously set money aside each month and lock it up into a retirement pot.
However, if you’re on a PAYE contract, many employers will match your pension contributions with a pension matching scheme. This way, money will trickle out of your paycheck each month and build up a substantial retirement fund for you to enjoy when the time comes.
Job Security & Employee Perks
Having peace of mind about the security of your income can be extremely comforting.
With freelance contracts, your hours or pay can suddenly decrease. Unexpectedly having your hours decreased can be stressful.
As an employee, your contracts give you more security and should the worst happen, you’ll receive your notice plus holidays as a minimum, and in some cases a severance package and continued benefits. So, you’re never left short at the end of the month.
Employee Assistance Programmes (EAP) are designed to offer employees support with problems at home and overcoming personal health issues that could impact their performance at work.
So, whether it's receiving private medical insurance, reaping the benefits of a cycle to work scheme or even something as simple as your manager writing a positive letter of reference, employment contracts offer the comfort of long-term perks and job security.
Employment Made Easy With Change Recruitment
Are you unsure about how the new legislation will impact your financial position and employment opportunities?
Speak with one of the dedicated recruitment consultants to get the answers you’re looking for. We’re here to help you make the best possible decisions and guide you towards a happy and healthy career.
Learn more about our services and how we connect top talent with incredible full-time and part-time employment opportunities.
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