Freelance miseries
So 6 April has come round again, heralding another tax year. This time, though, the portents are not good for the UK freelance market - IR35 has finally arrived. The actual legislation will probably not be enacted until June or July but we must all arrange our affairs so that it can be applied retrospectively.

colin beveridge

So 6 April has come round again, heralding another tax year. This time, though, the portents are not good for the UK freelance market - IR35 has finally arrived. The actual legislation will probably not be enacted until June or July but we must all arrange our affairs so that it can be applied retrospectively.

From now on a contractor becomes a director of a limited company that is legally prevented from making any profit. How easy will it be to get a mortgage if your earnings derive from an unprofitable company?

The income from IR35-susceptible contracts is effectively ring-fenced and not available for re-investment in business development. So how does the one-man band move into new markets?

I have met many contractors who use their freelance income to support other ventures, to the benefit of themselves and the Treasury. That avenue of opportunity is now closed.

The application of the "deemed salary" principle will mean, of course, that we will have tax and NI deducted but we will not be allowed to receive the full range of employee benefits because during periods of prolonged "unemployment" we continue to work for our own companies.

The stated justification for IR35 was to close a tax avoidance loophole, because dividend payments are not subject to NI contributions. The simple remedy was to make dividend payments liable to NI. Instead we are faced with legislation that will cripple the UK freelance community. Many are likely to give up, go away or move into grey areas of legality.

Some of you may feel that IR35 is vindictive, illogical and morally bankrupt - but I couldn't possibly comment.

Colin Beveridge is the founder of Premit, the independent association for interim managers


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This was first published in April 2000

 

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