The Implications of IR35 for Mortgage Brokers

It’s going to hurt a lot of people and very probably a host of businesses with unexpected tax bills. I remember as a young lad, trying to get into clubs and late-night bars. There was always a burly bouncer on the door who could refuse you entry and dampen your entire night with one decision. HMRC are going to be doing this very soon to your clients.

On LinkedIn, I’m amazed at how many people declare they’re going self-employed and then announce that their previous employer wanst them back as freelance.

These people need to be aware. IR35 is a club. A good club to belong to if you’re self-employed, in other words working for yourself and not running a true company. You might be sole trader or an owner/director. Someone who has set up a limited company purely as a tax wrapper.

If you’re in the IR35 club, then you’re regarded as true self-employed and entitled to the tax and fiscal advantages of being so.

If the bouncers kick you out of the club, you’re not coming back in and will be treated as an employee of the firm you’re freelancing for. Even though the firm doesn’t want this tag as they’ll become liable for National Insurance and other costs. In addition, as an employee, you’ll end up paying more tax. The HMRC reckon that between 2020 and 2024 they’re going to rake in an extra £3.1 billion.

Now before you ask, IR35 club has been around for a long time and HMRC were getting nowhere with it so in 2017 they clobbered the public sector and their use of freelance people. Employers in this sector took the decision to gauge whether you were employed or self-employed, decided whether you were in the IR35 club. It was their responsibility, an enormous admin burden, and as a result, a lot of freelancers were turned away.

In 2020, HMRC are turning to the private sector, who will now have responsibility to determine the tax status of every third party they bring into the business.

During your CeMAP learning, you would have discovered how a self-employed person differs from an employed dude for tax purposes. Employed versus self-employed is the question.

A few years back I undertook a three-month contract with a major building society where I was committed to work for three days a week; it was great fun, a fabulous place to work and I met some great people. However, for all intents and purposes, I was employed. I had a company laptop, hours of work to adhere to, I even had a line manager an she even conducted one to ones with me. The micro-management niggled me; I left pretty quickly.

The point is, I didn’t qualify the rules of being self-employed – there are three – how much control you have over the work, whether you can send in a replacement and whether you can refuse work.

What are the implications for mortgage advisers:

  • Lenders are open to lend to owner/directors and will base affordability on dividends and salary, and many are flexible with net profits too. Often these numbers can look rather healthy. Segway this to an equivalent salary if they were employed and this won’t be so vigorous. This will affect the maximum loan. Beware.
  • Your own taxation basis. Are you employed or self-employed? Self-employed but all your work emanates from one company? Beware you may not be let into the IR35 club, and this will negatively affect your taxes. Seek guidance. Likewise, network members may get caught here too. No one really knows for sure.
  • Client queries. You may get asked about it from clients. You’re not an accountant, but you should have a modicum of knowledge to have a half-decent conversation before you refer them on.
  • Existing self-employed clients. Dig out the files and see if any of your self-employed or owner/director clients could benefit from a remortgage now rather than 2020 when the new rules may inhibit their income.
  • You could organise a presentation on the topic and be invited to a gathering of self-employed brethren. Use the opportunity to drum up some business.

The phrase “if you’re not on the list, you ain’t comin’ in” would be used by nightclub bouncers of old, very soon HMRC will be asking the same question.

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