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How will IR35 impact contracting in the marketing industry?


The marketing industry is, in its very nature, full of change and innovation. For employees, freelancers, contractors and organisations, being adaptable and open to new processes is part and parcel of being in marketing – but what about when that change impacts your bottom line?

IR35 is one such development that looks set to shake up how contractors and organisations engage and work with each other. Its changes are set to impact every industry they touch, and having been rolled out across the public sector in April 2017, we can already see how much of an influence the reform might have. The digital and communications industries have been particularly buoyant with contractors in recent years, so just how much of an impact will the changes have?

Here’s what you need to know:

What is IR35?

IR35 is an off-payroll working rule that has been in place in the UK since the year 2000, which means contractors and organisations that use contractors will already be aware of its implications. However, there are key changes ahead for IR35 and how it’s used to determine tax status. Having initially been planned for roll-out in April 2020, the pandemic's impact on the economy meant it was delayed until April 2021. 

Contractors have long enjoyed tax benefits associated with their self-employed status, which have been allowed by IR35 which aims to differentiate between workers who operate as genuine contractors and those who are effectively disguised employees. However, while the legislation has been in place for nearly two decades, it’s long suffered from a lack of clarity that has led to some freelance workers exploiting its ambiguity and claiming extra tax breaks.

Changes to the legislation are focused on who determines the tax status of a contractor. Currently, contractors working within the private sector can decide their own employment status – that is, whether they fall inside or outside of IR35 and therefore whether they can claim tax benefits. The update taking effect in April will put the onus of classifying a contractor’s tax status onto the company, meaning workers will no longer be able to determine for themselves whether they’re inside or outside IR35. For some contractors, this might have significant financial implications, and for organisations it’s an entirely new process and level of administration to adapt to.

What do the IR35 changes mean for the marketing industry?

The changes to the legislation have already been rolled out across the public sector, with mixed results. A study by CIPD and IPSE found that more than half of public sector hiring managers reported losing skilled contractors due to the changes, with the decision to blanket-assess workers as inside or outside IR35 causing some to move away from contracting entirely. This suggests there could be significant changes ahead for the private workforce.

Within the marketing, digital and communications sectors, the impact remains to be seen. There are ripples of concern amongst the industry regarding the commercial impact of the legislation update, and in some areas we have started to notice a shift in demand away from contracting roles to more permanent internal solutions. There are concerns around using HMRC’s CEST tool and recent case law that has centred around this, so this is something everyone in the industry will be keeping an eye on as the deadline looms nearer. However, the overall shift towards contract working we’ve seen within the marketing industry in recent years seems hard to stop. Marketers are drawn to more than just the better remuneration (although our research shows that 21% choose contracting for this reason) - 31% choose contracting for its flexibility, which is not under threat from the new IR35 rules. Contracting will remain appealing for many, regardless of the new tax implications.

It’s important to note that the legislation change only applies to medium and large business, with small companies (those with 50 employees or less, a turnover of £10.2 million or less or £5.1 million or less on its balance sheet) excluded. Marketing professionals work across a huge range of industries, with EMR’s 2020 Market Report revealing financial services, technology and telecoms and professional services as the sectors most dominated by marketers – and interim, temporary and fixed term contract workers accounting for 31% of the workforce. The same research shows 23% of respondents work in micro or small companies, which will be exempt from the changes.

What can contractors and clients do to prepare for IR35?

For candidates, it’s important to research as much as you can about IR35 and how it might impact you, whether that’s in your current contract or future engagements. Speak to your recruitment consultant and accountant and weigh up what impact a change in status might have. For example, if you lost out on the tax benefits you have previously enjoyed as a contractor, would you consider applying for permanent roles? Or is the flexible nature of contracting enough to keep you in this line of work?

Companies impacted by the IR35 changes should act immediately to understand the change in legislation and how this might impact their current contractor base and any contractors brought on in the future. They should take a dedicated case-by-case approach to ensure the status of each contractor is determined independently and fairly, steering clear of blanket assessments which are not only unfair, but could lead to legal action.

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