As of April 6, 2021, new tax rules are in effect for certain self-employed individuals in the United Kingdom and some of their clients.
IR35, also known as the Off-Payroll Working Rules, may apply when the freelancer operates under a personal services or similar company.

In general, IR35 shifts the responsibility of worker classification from self-employed individuals working through their own limited company to, in some cases, their clients. The goal of IR35 is to ensure that the appropriate taxes are paid.


Below is some general information, but please keep in mind it may not apply to you. To determine whether IR35 applies to you, it’s best to check with your own tax advisors. 

IR35

In the UK, self-employed individuals can form a “Personal Services Company” or other, similar types of limited companies (for ease of reference, we will refer to all of these as “PSCs”). A PSC is a small business designed to allow a worker to provide services independently, and PSCs are subject to different taxes than workers who are not self-employed.

Before IR35, PSCs were responsible for determining whether a worker was an employee or independent contractor. Under the new law, certain UK clients need to make the decision instead. When we say “UK clients,” we mean a medium or large business that resides in or has a permanent establishment in the UK. Under the law, these businesses must determine whether a worker would be an employee of theirs if no PSC existed. If the client finds that the freelancer would be, they must withhold the appropriate tax themselves.

IR35 also states that if these clients are using an intermediary — such as Upwork — to process payments, the client can pass the obligation for withholding taxes to the intermediary. In short, this means the client must let us know, in writing, whether a freelancer is subject to taxation under IR35.

For Clients

Whether you as a client are large enough, or have sufficient presence in the UK for IR35 to apply is up to you to determine. If IR35 does apply to you, every time you engage a freelancer through their PSC you should determine if they would be considered an employee if you worked with them directly. The government has provided this tool to help UK businesses make an employment status determination.

If the worker is classified as an independent contractor, you may continue with your project as usual on Upwork. If they would be considered an employee, you can email us at legalnotices@upwork.com to notify us of the designation and provide all details of the engagement. If you wish to continue with the project on Upwork, you will be required to use Upwork Payroll so the appropriate taxes will be withheld.

Unfortunately, we cannot provide specific tax advice — if you are having trouble determining your or your freelancers’ status under IR35, you should consult with your own advisors.

For Freelancers

As a freelancer with a PSC , you may no longer be responsible for determining your worker status if IR35 applies to your client.

If your client meets certain criteria (see above), they are required to determine what your worker status would be if they had engaged you directly. Once they make that determination, they will present it to you in a Status Determination Statement (SDS). If you disagree with the SDS, you can discuss it with them.

If you are having trouble reaching an agreement with your client on the SDS, you should consult with your own advisors to make sure you get the best advice.

FAQs

I’m in the UK, can I still use Upwork after IR35? What is Upwork doing about IR35?
Clients and freelancers in the UK can still use Upwork’s platform. All that IR35 has changed is who is responsible for determining a freelancer’s worker classification, under certain circumstances. Before the expansion of IR35, self-employed freelancers with a Personal Services Company (PSC) or similar limited company were responsible for determining whether to pay themselves as employees or independent contractors; now, the client is responsible for making that determination if they are a medium or large business that is resident or has a permanent establishment in the UK.
How do I know if the freelancer has a Personal Services Company (PSC) or other limited company?
You must speak to your freelancer to learn whether or not they are using a PSC or other limited company.
If I think a freelancer I’m working with is subject to taxation under IR35, how do I provide a designation to Upwork?
If IR35 applies and you determine the freelancer should be classified as an employee, then you can provide Upwork with a written designation indicating that the worker is subject to taxation under IR35. Email the designation to  legalnotices@upwork.com and include all the details of the engagement. We will then work with you to set the freelancer up on Upwork Payroll to ensure tax obligations are appropriately met.
What do I include in the designation?
You should speak with your own advisors about the content of your designations. However, for Upwork’s purposes, if IR35 applies and you determine the freelancer should be classified as an employee, you can provide Upwork with a written designation indicating that the worker is subject to taxation under IR35. Email the designation to legalnotices@upwork.com and include all the details of the engagement.
Do I need to use Upwork Payroll?
If the client determines an engagement is subject to taxation under IR35, the client will be required to use Upwork Payroll if they wish to continue with the project on Upwork, so the appropriate taxes can be withheld. Alternatively, the client can opt to pay the Conversion Fee to take the relationship off of Upwork’s platform.
Does IR35 apply to me?
Unfortunately, we cannot offer specific advice on whether IR35 applies to you or not. You must make that determination yourself and you should consult with your own advisors. For Enterprise Compliance clients, Upwork will make the worker classification determination for freelancers located in the UK, including those engaged through their own Personal Services Company (PSC) or limited company to ensure any taxes are appropriately withheld. Our classification compliance services are supported by our award-winning legal team and legal experts from across the globe, and we apply our assessments based on your and the freelancer’s locations. Learn more about classification assessments here.
What if a freelancer disagrees with my worker classification designation that I issued in the Status Determination Statement (SDS)?
IR35 requires qualifying clients to have a status disagreement process in the event that a worker disagrees with the Status Determination Statement (SDS). IR35 also requires qualifying clients to respond to the disagreement within 45 days of receipt. Please contact the freelancer to discuss this matter with them directly. You should also consult your own advisors.

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