IR35: How freelancing fared during HMRC’s off-payroll rule soft-landing
We are a few weeks past the end of the IR35 soft-landing from HMRC, but among freelancers and other self-employed workers affected by last year’s off-payroll rules, some confusion remains, writes Runar Reistrup (pictured), CEO of freelance talent platform YunoJuno.
In fact, during the IR35 grace period which ended on April 6th 2022 – at which point HMRC’s 12-month pledge to not issue penalties for innocent mistakes ended, some of the most-viewed resources across our network were explainers about the new off-payroll rules. These rules were introduced for the private sector on April 6th 2021.
We know from the many conversations we’ve been having within our company and community over the past year, that there has continued to be a fair amount of confusion around exactly what a reformed IR35 means -- for both freelance professionals and their clients.
What are self-employed workers saying?
One of the main trends we’ve noticed is a load more processes to contend with. At a large number of large and medium-sized companies (N.B. only small companies are not affected by the 2021 legislation), a lot of complication has found its way into the hiring process. This has created confusion for affected workers who invariably just want to get on with the job. And frustration for us and clients, because such processes have increased ‘time to hire.’
Furthermore, some of our platform’s freelancers have told us that clients have not been communicating the IR35 status of assignments early enough. Often, the freelance contractor may have discussed the project with the client, and even submitted a day-rate timesheet, before being told that the contract is inside IR35. This leads to an awkward conversation including on the prickly issue of changing the rate upwards – because understandably the worker wants to preserve as much of their take-home pay as possible. While we don’t know of a magic bullet we can share with freelancers to cut through this awkwardness, hopefully now knowing you’re not alone in having to broach the subject of pay -- when placed inside the IR35 legislation -- should be at least some reassurance.
From our other conversations with the freelance community, we’ve also heard instances of clients taking an existing process and just shoehorning an IR35 process into it. At its worst, this has resulted in occasions when workers have been put through a process that didn’t even apply to them. Remember, IR35 only applies to freelance professionals who operate through their own Personal Service Company (PSC), not those operating as sole traders or using umbrella companies.
What are freelancers’ end-users saying?
But as the customer is king, what are clients saying? This is an arguably even more important question to ask in relation to the off-payroll framework, given it is the end-user of the freelancer’s services who, under the reformed rules, bears the responsibility for assessing IR35 status.
Well, feedback from clients confirms that their IR35 processes and sign-off have in some cases doubled time to hire. Problematically for the UK’s covid recovery effort, we’ve even seen cases where it has taken up to two months to fully ‘onboard’ a freelance contractor.
But at least such engagers are still accepting PSC freelancers! Indeed, a number of large multinational organisations took the decision last year to make things simpler for themselves and not work with PSCs at all. The result at these outfits? All freelancers operating via their limited company structure would have to be taxed at source via PAYE.
Flight of talent fears allayed
There was some concern over flight of talent due to this. And the temporary labour market was braced for major upheaval as a result of the potential exodus. However the demand for experienced talent -- as covid restrictions lifted -- has seen a return to confidence, with some highly sought-after disciplines, like Development, enjoying a near-100% increase in bookings.
More remarkable still perhaps, this mega increase for freelance developers hit within six months of IR35 reform’s introduction.
Now and next
Fast-forward to today, and we see a significant number of companies engaging with PSCs and, despite the longer time to hire, overall bookings of freelancers on our platform have continued to sharply increase throughout the soft-landing period (which ran from April 6th 2021 to April 5th 2022).
Yes, there are undoubtedly internal client processes introduced because of the 2021 rules which could be improved. Yes, certainly Status Determination Statements and explanations need to be given earlier. But fortunately, it’s another ‘yes’ from us! In particular, yes, we absolutely do envisage that these teething troubles will lessen over time as clients, contractors and the freelance community as a whole (including us), get used to the changes and strive to incorporate them into ‘business as usual,’ especially now the grace period from HMRC is no more.