Chief Accountant Emily Coltman

Emily Coltman FCA investigates questions that accountants have raised about IR35 as it affects their clients.

The situation

A self-employed music teacher [Mrs A], who provides to her clients not only her own services but also those of other freelance music teachers, is presented with a letter from her client, a school.

The school has written to her quoting "new IR35 regulations" and wants her to confirm that; "she is responsible for paying income tax and NIC for the staff that you employ" and "in future this needs to be shown on the invoice with the gross amount and then deducted at the end to show the net amount owing to you from the school".

Emily’s analysis

I would like to pick out a couple of key points from this:

Why is it the school’s responsibility to make sure that Mrs A, a self-employed supplier, is deducting the right amount of tax and NIC from her staff’s wages? Would the freelance teachers come under the new IR35 rules?

This problem is not as straightforward as it might originally seem.

Firstly, as Mrs A is self-employed rather than operating through her own limited company or through a partnership, then IR35 would not apply in any case to the relationship between her and the school, although she and the school should both be sure that she is self-employed for this engagement.

Secondly, the involvement of the freelance music teachers adds another twist to the tale. We’re not told what the status of their relationship is with either Mrs A or the school, but it is not impossible that Mrs A’s business could count as either an intermediary or an employment agency, and that the freelance music teachers are quasi-employees of the school.

This is potentially why the school is concerned to make sure Mrs A is deducting tax and NIC from her freelance staff’s payments - because they do not wish to find themselves responsible for these taxes. However, I have yet to find a requirement for Mrs A to include these on her own invoices, since they are not for her own tax and NI but for other individuals.

Mrs A also needs to remember, and make sure she complies with, the employment intermediary reporting rules in respect of the freelance staff, though it is interesting that these rules do not apply where the workers concerned are musicians. As the freelancers are in fact music teachers, would the “musicians” exemption apply?

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