Freelancing and accountancy: Ask Andy Answers
We’re nearly two months on from the introduction of the IR35 reforms in the private sector, but many of you still have questions for Andy Vessey, Kingsbridge’s Head of Tax and resident IR35 expert. This week he answers questions on several aspects of IR35, including how freelancers can review their statuses and whether or not being inside IR35 means you can no longer use your accountant. Read on for all the answers…
This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant for any tax advice.
The agent I've been working with recently presented a new opportunity, for which the client determined the contract inside IR35. Although this was successfully overturned, I was surprised to hear that if the SDS had remained inside IR35, my agent would have expected me to disengage with my current accountant and select one of the umbrella companies from their PSL for PAYE arrangements.
The suggestion appeared to be that my agent would not act on my behalf if I did not do this and, therefore, the opportunity would be withdrawn even though the client was keen to proceed with my services. Ironically, the umbrella accountant that was recommended was one I disengaged with previously due to poor service and high fees.
Is this another unintended consequence of IR35 or, worse, restraint of trade? How can a third party have the right to decide how I structure my independent business?
It is not for an agency to tell you who should and should not act for you in your accountancy and taxation affairs. Even if the engagement had ultimately been deemed ‘inside’ IR35 you are still at liberty to operate through your own PSC, albeit that it is effectively redundant in this situation. The recruiter however seems to have other ideas. With the end client keen to utilise your services regardless, one wonders whether the recruiter’s policy was a one-sided or two-sided decision?
If the end client had taken a decision to blanket ban PSCs and only engage contractors working through umbrella companies or agency PAYE, then I could understand an employment business only wanting to work with an umbrella that was on their PSL, to protect themselves from unscrupulous umbrellas.
All of the agencies I work through are stating that all of my clients are taking a blanket approach to IR35 and only taking on people on a PAYE basis. Some are insisting on HMRC-approved umbrella companies for payments. As I work for various companies through various agencies, and the contracts are all one-off, lasting only a few weeks, I feel let down and pretty much at a loss what to do next. Closing my limited company down and calling it a day, seems to be the only way forward.
I hear the frustration and exasperation in your message, and I do sympathise with you. I know it is scant consolation but I do think this type of strategy being imposed on contractors is short-sighted and may well come back to haunt them when they are in desperate need of skills. If you don’t need your company and don’t think you’ll need it in the next two years, then you may wish to consider liquidating it and distributing the company’s assets as capital, claim Business Asset Disposal relief and thereby expose the distribution to more favourable capital gains tax treatment rather than Income Tax. Before doing so, you should discuss this with your accountant or tax advisor as proper planning is required. Beware the Targeted Anti-Avoidance Rule (TAAR) that can recategorize capital income as a dividend if you start-up or are involved in a similar business within two years of the distribution. However, if you can demonstrate that the main purpose, or one of the main purposes, of any winding up, was not to avoid or reduce a charge to Income Tax, then you should be able to prevent the TAAR applying.
I'm a freelance writer and should be outside IR35. However, one of my clients has run an assessment through the HMRC tool, which was unable to determine my status.
I have taken a look at your tool but it seems very geared to contractors rather than freelancers. Do you have any plans to adapt this for freelancers or is there an alternative tool you could recommend?
The terms contractor and freelancer are interchangeable as both usually describe self-employed individuals operating through their own PSCs. The tests of employment status are common to all but I do accept that there are some professions and industry sectors that have their own idiosyncrasies, e.g. the film and TV industry. It is problematic to incorporate nuances into a status tool without it becoming unwieldy, hence the reason why the Kingsbridge tool, like many others, caters for the majority of contractors/freelancers whose status can be determined more straightforwardly. For those whose circumstances aren’t as clear-cut, then I would recommend that you have your contractual and working arrangements manually reviewed by a member of our IR35 team. This has the benefit of being more detailed than an automated review albeit that the Kingsbridge tool does produce an accurate and reliable result.
How to Ask Andy…
If you have an IR35 question for Andy, you can submit it using our online form and he’ll do his best to answer here on this blog.
Meanwhile, if you’re intrigued by the Kingsbridge Status Tool which Andy discusses in this week’s final question, you can find it right here. For just £50 plus VAT, the tool reviews your contract and working practices, giving you an inside or outside IR35 determination instantly. And if your status is indeterminate, it will pass your details to one of our IR35 team for a manual review, giving you the best of both worlds.