HMRC rules are in force already that change how freelancers and clients need to manage IR35 - placing new responsibilities on clients. The legislation applies to services by freelancers who operate via a Personal Services Company (PSC). For services taking place for large clients after the switchover on 6 April 2021, it will be the client’s responsibility, instead of the PSC freelancer’s, to prove IR35 compliance. Are you an exempt client?
There are essentially two groups of business which are exempt from the new rules:
Small businesses in the UK; for bookings made by small businesses it will still be up to the PSC freelancer to self-assess for IR35 compliance.
Businesses considered "wholly overseas" with no links in the UK; for bookings made by wholly overseas clients the PSC freelancer must self-assess their own IR35 compliance. You can read more about whether this fits your business on the Gov.uk website.
We've split this guide into three sections based on which rules govern your type of UK organisation. Pick the right section and we'll guide you through how to find out IR35 if you may be exempt as a small business. Some of these rules have timeframes attached to when they trigger - please see the HMRC links and read the detailed guidance.
Companies Act businesses
Covers the majority of hiring companies on the YunoJuno platform.
Non-Companies Act businesses
Covers non-common business types (for example, a non-Companies Act partnership, a sole trader or a charity).
Covers organisations defined under the Freedom of Information laws.
Small Companies Regime for Companies Act businesses
If your business is any of these:
limited liability partnership
then the Companies Act rules apply.
To qualify as small under the Small Companies Regime the business needs to meet two or more of these criteria:
turnover of £10.2 million or less
total balance sheet of £5.1 million or less
Less than 50 employees
If your company meets two or more of the above criteria, then it will qualify as a small business and be exempt from the new IR35 rule changes.
Companies that do not qualify as a small business are classified as medium/large and the new IR35 rules will apply. See this HMRC link for more information.
If the business is part of a group, then worldwide turnover/balance sheet/employees of the group as a whole are used. See this HMRC link for more information.
Some businesses are always medium/large, even if they meet the criteria in the list above: public companies and businesses in the financial services/insurance sector, for example. Any business not permitted to file accounts under the Small Companies Regime will be medium/large for IR35 purposes and the new IR35 rules will apply.
Simplified Rules for non-Companies Act businesses
If the business is not one of the common business types listed above (for example, a non-Companies Act partnership, a sole trader or a charity), then the Simplified Rules apply.
The business will be small, and thus be exempt from the new IR35 rules, only if it has an annual turnover of £10.2 million or less.
If it’s more than that, the business will be medium/large and the new IR35 rules will apply.
Turnover is looked at under the Simplified Rules for the last financial year ending at least 9 months prior to the beginning of the tax year. Charities do not need to take into account donations when calculating turnover. See this HMRC link for more information.
Again, if the business is part of a group, then it’s the worldwide turnover/balance sheet/employees of the group as a whole that are used.
A public authority is defined under the freedom of information laws and the new IR35 rules will always apply. See this HMRC link for more information.
Still not sure?
Your internal finance team/accountant will have a record of your organisation type/size as part of the organisation’s accounts. We cannot emphasise this enough: it’s your legal obligation to determine if you are a small business and therefore exempt, and only your internal finance team/accountant can help you with this.