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New UK freelance tax rules – how publishers can prepare

The concept of ‘what is new in publishing’ ordinarily involves the excitement of a Pulitzer Prize nominee, a merger between successful media independents, or news of breakthrough innovation – yet the advent of new and unique tax legislation will require publishing companies to write their own copy in the esoteric and abstract field of tax law.  

The new off-payroll ‘IR35’ rules for the private sector come into effect on 6 April 2021, and require a fresh approach to contracting with freelancers who utilise an intermediary contracting vehicle, such as their own limited company.

The purpose of the original legislation (Chapter 8 ITEPA 2003) was to ensure that those who were in reality contracting as if they were employees would be taxed as such. It was, in effect, an anti-tax avoidance measure. As independent freelancers have grown across all sectors of business and industry, the publishing industry’s reliance on the flexibility and impermanence of consultants, sub-editors, ghost-writers and illustrators has been no exception.

The new legislation requires any company that is not a small business to publish their own statements to any independent contractor they may wish to instruct. Where a freelancer is instructed for an editing or illustration project, for example, if that freelancer operates via an intermediary vehicle such as her limited company, then the end-client is required to issue a status determination statement to the freelancer setting out whether the freelancer falls within or outside the off-payroll rules. Such a statement must state whether or not a specific and theoretical condition is satisfied: if the contract was in fact with the freelancer themselves (and not their intermediary), would the freelancer have to be regarded for income tax purposes as an employee of the client?

It is fair to say that this obligation is hardly a task that any business – even a publishing company – will gain any excitement from having to fulfil. At a time in which publishing has already negotiated a heightened push from print to digital, the economic recovery that we all hope for hardly makes new tax laws and responsibilities a welcome development.

The challenge is heightened by the fact that if this unwanted publishing obligation is not answered, or the end-client fails to provide reasons for its answer, then the client becomes the ‘fee payer’. This means that it is the client that is obliged to make PAYE and NI deductions on the ‘deemed direct payments’ to the freelancer’s company.  This is especially unattractive for the vast majority of freelancers, who are in business in their own account – and have all of the overheads of small business: an accountant, a social media or advertising budget, and genuine project-based engagements for end-clients. Far from being employees in disguise, these are genuine freelancers whose unique expertise is relied upon on a needs or as-and-when basis.

The good news is that freelancers need not be pushed off the proverbial pier by publishing clients who depend on them for core work. Publishers need not ramp up their PAYE staff, nor need they rely upon umbrella companies – in order to ensure that the flexibility of human resource is maintained. The shift from print to digital has also occurred in legal and accountancy services. It is entirely possible to arrange compliant models of engagement that support the letter and the spirit of the new legislation, without becoming constrained at the precise moment in which flexibility is the order of the day. A fluent on-boarding process for any freelancer can be supported by a holistic approach to the requirements of the new legislation.

In real terms, while the requirement to issue a status determination statement to a putative freelancer may appear to be an impossible hurdle, it is in fact an obligation that can itself be incorporated into a clear digital strategy.  

It is important, however, that key steps are taken before the 6 April. These may include:

  • Identifying the base of freelancers upon which the business relies
  • Utilising external expertise to save costs and expense
  • Maintaining a transparent and technologically driven software-as-legal-service system
  • Protecting your business by outsourcing risk and ensuring that the on-boarding process is insured

The legislative reforms are a postponed new chapter that was meant to come into effect last year, having been postponed by the pandemic. It is not the case that the new regulatory regime ought to act as an impediment to the flexible labour resource upon which publishing has for so long depended. While publishers may not be used to writing their own copy – particularly in the abstract realms of tax law – the reality is that a structured and consistent approach can both relieve the burden and improve operating and efficiencies.

Michael Paulin, Tax Barrister and Founder of Wolf IR35 Legal Services

About: Wolf IR35 Legal Services provides support to businesses and corporations in light of the forthcoming IR35 private sector legislative reforms. Utilising a combination of cutting-edge legal technology and legal Counsel, the team helps clients eliminate IR35-related risk whilst reducing costs and preserving tax efficiencies.