How marketing agencies should handle new IR35 legislation

New rules to tackle tax avoidance that govern freelancers and contractors come into force in April 2020. Rebecca Siciliano explains what they'll mean for agencies

The new IR35 legislation will be introduced in April 2020 to close a loophole that will prevent some contractors and freelancers paying less tax than payrolled employees. The marketing industry, particularly agencies and consultancies, has long relied on these flexible employees to plug specialist skills gaps, work on short-term projects and provide temporary cover. However, the new legislation could put this flexibility at risk by strong-arming consultancies into bringing contractors and freelancers on to the payroll.

Marketing companies need to know how they will be affected and put a plan in place to ensure the impact is minimised. So, if you’re not familiar with the background of IR35 law, and what to expect, here are a few steps to take in preparation for the change. 

How many employees will be affected? 

First, you should determine the exact number of employees affected by IR35. When the law changes, the onus for ensuring compliance will shift to ‘end clients’, such as marketing companies - rather than falling on the individual - so it’s extremely important to get it right. An IR35 assessment tool, like the UK government's Check Employment Status for Tax (CEST), and will help you to calculate this accurately.

Alternatively, you may decide to use an independent assessment service, but keep in mind that these will be in high demand as we inch closer to the deadline, so making a quick decision on this is important. Once you have made the assessment, it is your legal requirement to inform that employee as to their status through a Status Determination Statement. 

The potential financial impact

If you engage employees who fall within IR35, it means that your company will be liable for any tax that the employee fails to pay – for example National Insurance and Income Tax. Therefore, employing these freelancers could mean there’s a certain level of risk when the law comes into force. To avoid this, these employees should be brought on to internal payroll to negate IR35 completely. If your company decides to go down this route, keep in mind that this will mean you will need to pay them salary and benefits that you may not have paid in the past, as well as their National Insurance contributions. 

Failure to comply with the law could mean that your company would then be responsible for outstanding taxes (with potential interest), as well as possible additional penalties. 

Options for staff members under IR35

It’s important that you sit down with staff members affected by IR35 and talk them through their options. For example, if a freelancer falls under the IR35 umbrella, you may decide to invite them on to the payroll or, if that isn’t an option, change the way they work so they fall outside the law. 
In the latter case, you can take steps to ensure they fall outside IR35 by reducing their hours, asking them to work remotely or work with less supervision than they have previously. This may mean that the freelancer’s role changes significantly, so negotiate these arrangements on an individual basis to suit both parties. 

Revising strategic hiring plans 

Once you have followed the above steps, it’s a good idea to revise your own hiring plans going forward. If you have relied on freelancers to fill skills gaps, consider whether an increased number of permanent staff would be suitable for your business post-April 2020. In addition, make sure any new hires’ working arrangements are negotiated according to the criteria outlined above. 

In general, thorough preparation is vital, so give yourself plenty of time to research, plan and implement any changes before April 2020.

B2B Marketing Training

Expert B2B marketing training courses for marketers and teams in the fast lane to success

See our full range of training courses

B2B Marketing training