The advertising & marketing world has always made heavy use of freelancers. However HMRC has also been keen to make sure that freelancers are properly categorised and that no one is avoiding PAYE/NICs. The IR35 rules (to cut down on avoidance through the use of personal service companies) were introduced over a decade ago, but the perception is that they haven't had much effect, partly because they've been hard to enforce against freelancers. Reform was inevitable and it was finally announced in the Chancellor's Budget speech yesterday.
Businesses will – from April 2020 – be responsible for deciding if the IR35 rules apply to payments to their freelancers' personal service companies. This means that you must assess whether an individual is – in substance – acting as your employee, regardless of how you engage them. If they are acting in the same way as an employee you will have to withhold PAYE and account for NICs, even if you’re making a payment to the individual’s personal service company. And you will be at risk from HMRC if you don’t.
There are two glimmers of good news in there. First, it won’t be implemented until April 2020, giving businesses a bit more time to get their systems and processes in good order. Second, small businesses will be exempt - we expect the definition of "small" to match existing tax definitions, so broadly businesses with fewer than 50 employees should be exempt.
Agencies will need to start getting their house in order over the next year or so, and find a workable way to take on, and then monitor, their freelance engagements.
As a first step, we will be holding a breakfast seminar on Thursday 29th November to explain what this means for agencies and how they need to prepare. Drop me an email if you might like to come along.
Responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker.