A novel approach to IR35

Publishing has long relied on self-employed freelancers for a diverse range of roles. From editors and copywriters to illustrators and ghost-writers, the periplectic nature of creativity has long been such that impermanence is a norm. Against that context, the publishing industry faces the new IR35 changes – also known as the Off-Payroll Rules – which come into effect on 6 April 2021.

Upon this date, publishing business will be required to, in effect, write their own legal copy by issuing ‘Status Determination Statements’ (“SDS”) to their contractors. An SDS must state whether or not a hypothetical condition is satisfied: if the intermediary limited company were removed and the contract was with the contractor himself directly, would the contractor have to be regarded for income tax purposes as an employee of the client?

If this unwanted tax law question is not answered, or the client answers it but fails to give reasons for his answer, the client becomes the ‘fee payer’ and is thereby responsible for making PAYE and NI deductions on the ‘deemed direct payments’ to the contractor.

These legislative changes arrive at juncture in which the pandemic has further shifted print to digital and highlighted the need to accelerate the number of books that are available in digital formats. As the economy recovers, the process of managing increased manuscript submissions will require flexible labour resource more than ever. In addition, customer access to information and content is ever wider – with increasing numbers of ‘for- free’ sources driven by digital content consumption.

The findings contained in Maverick Publishing’s report, "The COVID-19 Pulse Check Report: The Impact of COVID-19 on the UK Publishing Industry,” provide a snapshot of the current state of the industry. The report highlights declines in revenues of over 75%, supply chain disruption and adjustments to operations from individuals and teams facing working from home challenges. While we all hope for economic recovery, publishing businesses who use self-employed contactors who operate via an intermediary, such as their own limited company, will have to face a new and unwanted tax and regulatory hurdle.

The key obstacle impeding a hassle-free status determination statement is the limited capabilities of the current legal and technological systems. Publishers have, however, successfully integrated technology into their business models which have proved essential in aiding the transition from print to digital. Indeed, Amazon’s initial business model focused exclusively on being an online bookstore. Booksellers have developed deep experience in both surviving and harnessing the power of digital and maintaining their businesses.

The good news is that publishers can continue to utilise the self-employed by ensuring that a legal and technological framework is implemented so those contractors are managed and administered in a compliant and cost-effective way. These steps include but are not limited to:

Understand your existing contractor population. Publishers need to have sat down and made sure they have a full grasp of the entirety of their freelancer workforce before 6 April.  A business can’t begin to tackle the problem effectively unless they have first mapped it out, assessed the scale of its reliance on contractors, and set priorities.  Really, this is just basic project management. But it’s absolutely vital for publishing businesses to do this so they can prepare accordingly and ensure their aren’t any nasty surprises next month.

Consider using legal technology. Publishers should think about utilising legal technology to assess their contractor base (and related tax considerations) in advance of the 6 April deadline.  The systems being provided by the government to help companies with IR35 frankly leave a lot to be desired – comparatively superior solutions are available on the market, which are better-placed to help publishers than if they rely solely on the advice and support of HMRC.  The legal technology market has skyrocketed in recent years.  Publishers should be exploring their options now, or at the very least thinking about whether they could use their own technological capabilities to tackle IR35.

It does, at a glance, appear as though Parliament’s intention is to make it less attractive for private companies to use contractors. With market volatility continuing to surprise us as we emerge from the coronavirus pandemic, economic systems as we know them will be altered and new businesses models will be vital.

If there is anything the pandemic has taught us, it’s that a flexible workforce is the key to economic survival.  And though the upcoming off-payroll rules may present some hurdles along the way, by taking the right approach, publishers can continue to frame the narrative when it comes to having a flexible and stable self-employed workforce on what is hoped will be a stable and confident road toward economic recovery.  They should not be dissuaded from using freelancers altogether.

Michael Paulin is the founder of Wolf IR35 Legal Services and a tax barrister.