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How can Freelance Chefs Prepare for the IR35 Reforms?

Written on 26-Sep-2019

Most freelance and self-employed contractors will be aware that from April 6th 2020, they will lose the right to set their own IR35 status unless they work with a small company in the private sector.

Recently, three BBC presenters have been told they must pay hundreds of thousands of pounds worth of back taxes after HMRC cracked down on freelancers using personal service companies to avoid certain taxes.

If you aren’t aware of the changes which will affect freelance and self-employed Chefs, now is the perfect time to start looking into it as there’s only a few months to go until the new legislation comes in.

Firstly, what is IR35?

In simple terms, IR35 is a piece of UK tax legislation.Gov IR35

It impacts UK personal service companies (PSCs) – a term which refers to limited companies with a sole or majority director/shareholder who provides the services of the company.

The reforms are designed to tackle “disguised employment”, which means a company hires freelancers and contractors to undertake work, yet they are effectively operating as employees. 

If a company or recruitment agency decides the contractor is not entitled to IR35 status, they must treat them as employees for tax purposes and deduct income tax and national insurance at source.

What does ‘outside IR35’ mean?

If your contract is deemed outside IR35, you are considered self-employed for tax purposes and are free to pay yourself in the most tax efficient way, which is typically through a mixture of salary and dividends taken from your company.

Contractors working outside the scope of IR35 are responsible for making sure all their personal and company taxes are calculated correctly and paid on time.

What does ‘inside IR35’ mean?

If your contract is deemed inside IR35, you’re considered an employee for tax reasons. This means you’re effectively required to pay tax at the same rate as an employee in the same tax bracket.

Tax and employment legislation are currently separate. So, whilst you may be considered an employee for tax purposes, you are not automatically entitled to employment rights.

What can you do to prepare?

The biggest challenge for freelance and self-employed Chefs is that they tend to have very little control of working hours, breaks and how they complete tasks so they should be classed as an employee.

The reforms are targeted at individuals who are not compliant, meaning that not adhering to the off-payroll working rules could have a significant impact on their income available to them and their families.

HMRC estimates that 170,000 workers are affected and will collectively pay £3.1bn more in tax and national insurance between 2020 and 2024.

Here are the steps you could be taking to ensure you are prepared:

  • Speak to your agency

Has your agency been in touch about IR35? If not, we suggest reaching out to them to discuss their plans for the reform. If they don’t know anything about it, alarm bells should be ringing.

Some agencies and industry bodies believe the rules are a problem for employers and contractors, but here at CJUK we welcome the reforms as we have always been proud about operating payroll for the candidates whom we supply to our hospitality partners, making the correct deductions at all times.

  • Spread the word

No doubt you work alongside other relief Chefs during your time in the kitchens, whether they are freelance or working with an agency. It would be worth speaking to them and getting their opinions, or if you’re working on the same contract, find out if the business you are working with is prepared.

  • Seek advice from a professional

If you’re worried about the changes or not 100% sure where you stand, it would be worth speaking to an IR35 specialist who can carry out an in-depth status review.

Whilst we are not qualified to offer professional advice on this topic, we have teamed up with an IR35 expert, Stephen Outhwaite of Outhwaite Associates, who is happy to offer assistance and professional advice.

What the reforms mean for companies & agencies

If the recruitment agency fails to pay the contractor correctly based on their given IR35 status, that agency will be responsible for unpaid tax and NICs.

This means that businesses and agencies will be under increased pressure when working with Relief Chefs as they will need to ensure the correct status decisions and deductions are made.

It’s time to act to ensure you’re prepared, whether you are a Chef, employer or agency.

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