You don’t want to get in trouble. So, what exactly are you supposed to do when a previous employer reaches out looking to enlist your services on a “freelance” basis?

Does it matter that you used to work for them? Would you fall inside IR35 if you were to say yes?

You probably have a lot of questions (including, “What’s IR35?”), but that’s ok because we have a lot of answers.
 

What is IR35 for freelancers?

In a nutshell, the IR35 rules were brought in to make it more difficult for employees to avoid tax by working for former employers through their own limited companies. They’re part of a wider initiative to try and tackle the issue of tax avoidance.

Now, you might be wondering what exactly constitutes a disguised employee. This is basically a person who works for someone on a self-employed basis, when in reality they’re functioning as a typical employee. Employers will often benefit from this kind of arrangement in that they wouldn’t have to pay National Insurance or other contributions, while the disguised employee wouldn’t have to pay as much tax.

The primary motive of IR35 is to determine a person’s employment status for tax purposes, and this ensures that everyone is paying the correct amount of tax and contributions.

One important point to note is that being IR35 compliant isn’t a fixed thing you achieve once and that’s it. In other words, the rules apply to each individual project you take on as a freelancer, and so it’s a constant battle to stay compliant. IR35 is also relevant to all industries and sectors, not just the creative ones (a common misconception).
 

If I work for an ex-employer, will I instantly be inside IR35?

Not necessarily. It all depends on your own unique situation. For example, are you in a position to set your own fee and choose when and where you work? If the answer is yes, then you’re more than likely fine.

If not, and the way you work is more like an employee in everything except for name, you could be heading into dangerous waters. Failing to comply with IR35 can result in financial penalties.

A basic rule of thumb is that if you’re being asked to do a 9-5 working exactly like you used to, you’re probably inside IR35. As a freelancer, you shouldn’t be treated like a regular employee.
 

Signs you’re inside IR35

There are additional signs to look out for:

• Your role is indispensable, meaning you can’t easily be replaced by another freelancer
• There’s a Mutuality of Obligation (any kind of obligation to give or accept work on either side, like there is between an employer and employee)
• Your work isn’t contracted by the client company directly
• You don’t invoice your client directly, and use an intermediary
• You’re not responsible for your own Public Liability insurance or Professional Indemnity insurance (where applicable)

Who decides if a freelancer is inside IR35?

Since April 2021, it has been for the client to decide whether a freelancer they’re working with is inside IR35 or not, so long as that client is a medium-to-large-sized private company.

In this context the company is one which has more than 50 members of staff, or has annual sales in excess of £10.2 million.

An important reminder here for freelancers is that you can contest a client’s verdict on whether you’re operating inside or outside IR35.

If you undertake freelance work for a small private company, then the onus is on you to determine your own IR35 status. Use HMRC’s online CEST (Check Employment Status for Tax) tool and keep a record of the determination, and the information you use to get that result.
 

Can I take on my ex-employer’s clients?

This is something else you might be wondering about if you’re now out on your own as a freelancer. As an employee, you had access to important information regarding clients – phone numbers, email addresses, etc. – but are you now allowed to make use of that information, even though you don’t work for the company anymore? Would this be ethical? Or even legal?

‘Solicitation’ in the context of employment law occurs when an ex-employee intentionally “persuades” previous clients, suppliers, vendors, other employees, or other affiliates of their former employer to work with them and/or their new employer instead.

Whether an employee is soliciting or not is a fact-specific thing, and whether it is legal or not depends on the unique circumstances.

For example, if there’s some kind of enforceable ‘non-solicitation’ agreement or written contractual term prohibiting the employee from soliciting from their employer – even after the end of their employment contract – then the employer can choose to sue the employee to hold them accountable.

In general, then, you want to try and exercise discernment when undertaking freelance work for a former employer. IR35 status is quite a nebulous concept which can be difficult to fully comprehend – even for HMRC!

 
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