Government Scraps IR35 Reforms - Unleashing The Power Of Freelancers For Big Business
What were the IR35 reforms?
In 2021 reforms were brought in by the government to the off payroll legislation (IR35). The objective of the IR35 reform was to make sure that contractors who operate as an employee pay broadly the same NI and tax contributions. Basically if it looks like an employee, walks like an employee and smells like an employee....it probably is an employee. The reforms meant that the burden of tax determination shifted from the contractor to the business when hiring temp staff.
Why didn't it work ?
The IR35 reforms were a shambles because the guidelines and tools set up to help businesses determine whether a role was inside or outside IR35 simply didn't work.
When considering whether a contractor or freelancer fell into IR35 there were 4 key areas that businesses needed consider:
1. Right to substitute
- is the contractor obliged to provide their services personally ?
- do they have the right to substitute themselves with an alternative ?
2. Mutuality of obligation
- is the client obliged to provide work and the contractor obliged to accept ?
- is payment based on time or work deliverables ?
- is the contractor in a project or a role ?
- can the contractor choose where and when the work is carried out ?
- do the use their own equipment ?
- do they have employee benefits / access to facilities / performance bonuses ?
IR35 status was to be determined on an assignment by assignment basis; meaning that companies needed to figure out themselves whether every contract project (no matter how big or small) fell inside or outside IR35.
To 'help' businesses do this the government provided a tool that was essentially a series of basic questions. Companies were asked to use the tool to help them determine whether their project was inside or outside IR35.
In 21% of cases the tool couldn't provide an answer and it came back 'undetermined'. That meant that businesses and contractors very often had no idea whether something was in or outside IR35.
What was the impact ?
The impact of this confusion was that many large businesses pulled freelancer or contractor projects because it became too cumbersome and expensive. For those businesses that did work with contractors they would often default to an inside IR35 position to be on the safe side. Ultimately this created more paperwork and increased costs on both the business and contractor side. All of this happened at precisely the time that businesses needed more agile approach to hiring talent - during COVID.
What happens now
The IR35 reforms that placed the burden of determination on the business will be officially scrapped next April. It will be the responsibility of the contractor to address their tax affairs and ensure they pay the correct taxes.
What does this mean for businesses and contractors ?
IR35 reform was a bad idea, poorly implemented, that had a direct negative impact on marketing services. Modern marketing services demand more agility when it comes to talent, not less. Agencies, brands and consultancies are demanding fast access to a wide range of specialist project based talent to match the complexity and demands of today. Scrapping the IR35 reforms will make it much easier for large businesses to engage with contractors and freelancers.
But it's not only businesses that win here. The marketing talent pool is moving more freelance and contracting - and the scrapping of IR35 reforms will create more opportunities now for that growing cohort of marketing experts choosing the freelance and contracting career path.