It is difficult to accurately decide whether a freelancer is definitely self-employed or definitely employed, or works inside or outside IR35, and as the official guidance has been left open to interpretation, over the years the interpretations have been many and varied.
Here comes another....
Most people don't have the foggiest idea what IR35 is all about, but it is true to say that a vast number of freelancers whose businesses are incorporated are personal service companies (PSCs) because the directors personally do more than half the work that the company invoices for. Then intermediaries' legislation commonly known as IR35, may apply.
The latest bombshell is that HM Revenue & Customs believes only 10% of PSCs that should be paying more PAYE on company income, because the director(s) would have otherwise been an employee of their 'client', are actually paying it.
Yet no statistics have been published on the numbers of PSCs which do not have to apply intermediaries legislation (IR35), so for all anyone knows the 90% that HMRC intend to target, could actually represent a tiny percentage of the total number of PSCs operating in the UK labour market.
Whatever the real position, it is evident that when contractor are paid through a personal service company, as far as the taxman is concerned it is becoming necessary to talk in terms of being 'in business' rather than simply of 'self-employment'.
There are very many PSCs that have identifiable business set ups, where the director(s) do not work under control and who shoulder a financial risk, and these business owners must not be allowed to be tarred with the altogether too large a brush that is the proposed change in intermediaries' legislation.
Those proposals are explained in latest consultation document and seem to be heading towards an almost arbitrary decision making process for contractors working in the public sector come April 2017, but for other industries, no one knows what can be expected.
The official line is that the updated guidance on IR35 will be made available to contractors and engagers operating outside the public sector next year, but whether used or not, intermediaries legislation still applies, it applies in the current time, and has done since April 2000. So does this help?
Workers who are paid regularly by only one or two clients and who use a PSC simply as a payment method with very little outlay or risk involved must now look at IR35 as a very real risk. Unfortunately, for everyone but those who can point to a clear and identifiable business set up, where the government is going with the proposed IR35 reform will remain an ongoing fog of concern for the foreseeable future.