Contractors, freelancers and fractional consultants are all in demand, but how do they differ and how does IR35 come into play?
Highly skilled consultants and contractors could equally find fulfilment in helping small and mid-sized companies scale and level up in the UK. These freelancers are in demand because they can often provide efficient and results-driven solutions in a fraction of the time and less the typical employee overheads.
But according to some recruitment specialists, fractional consultants and contractors could easily fall inside IR35 rightly or wrongly, stifling their earning power, quality of life and even motivation to help the tech-enabled startups that the British economy desperately needs.
“Talent is tired of living out of a suitcase working for behemoth consulting firms content with selling water bottles to the ocean, so long as it can afford the seven or eight-figure price tag,” says Robert Burke, Founder and CEO of Atlantua-based fractional consultant recruitment platform Sobo.
While these specialists work for “soulless corporate galaxies, they fantasise about helping small and mid-sized companies scale and level up,” says Burke.
“The underdogs can’t afford to hire them full-time, but then again, they don’t need to. After all, a fractional consultant can lead a sales team or design and execute a GTM plan in a fraction of the time it would take someone with less experience, and with much greater results,” he says.
Are contractors and fractional consultants the same?
Contractors often work on a project-by-project basis. They may have years of experience, but they usually agree to accomplish specific tasks or operate within set parameters, according to Sobo.
“Unlike contractors, fractional consultants do not generally work on a project-by-project basis. They usually dedicate a portion of their time to your small business,” a Sobo report explains.
For example, fractional consultants may set aside specific days of the week to come into the office and work alongside a company’s team. “Often fractional consultants typically fulfil an executive-level role (and possess executive-level experience), they will strategise and take action in light of your company culture and long-term business goals, instead of merely focusing on a specific project.”
It may be that a client only needs a singular project completed, such as a website, or require only a few recurring specialised tasks to be completed every month, such as podcast production or social media design. This is perhaps much more suited for a contractor or solo self-employed freelancer.
When is a fractional consultant considered inside IR35?
The higher your role in a client’s organisation, the higher the probability of HMRC considering your Off-Payroll status as being inside IR35. If you take a role which is to act as a consultant CFO or FD then you will fall within IR35 as both considered officeholder roles as far as IR35 legislation is concerned, according to recruitment firm FD Capital.
“This can include a board member, company secretary or company director. If you are presented to external parties as an office holder it doesn’t matter that you are not shown on companies house,” says FD Capital.
“It doesn’t matter if the role is part-time, interim or permanent as the role you will be performing is that of an office holder,” the recruiter says.
If you answer Yes to being an office holder on the CEST tool then the answer is immediate: Off-payroll working rules (IR35) apply, the recruiter explains on its site.
A fractional consultant, that does not take on an office holder role often works for multiple clients on a part-time basis. They typically have a niche area of expertise and offer strategic guidance and advice to their clients. Fractional consultants are also responsible for their own taxes and work on a project basis. If they are inside IR35, then they would be PAYE and the hiring company or freelance platform would ensure they are paying the correct tax.
Fractional consultants that have a higher degree of autonomy in their work for multiple clients at once, can help to demonstrate their self-employed status. The same holds true for some contractors and the majority of limited company and sole trading freelancers. However, this is not a guarantee, and it is important for all freelancers to ensure that they are meeting the requirements of IR35 to avoid penalties and potential legal action.
Reach out to those who know
If you are still on the fence when it comes to choosing which direction you want to go, then reach out to a fractional consultant on LinkedIn for some insights and real-life advice. If you are concerned about Off-payroll status and IR35, then call up an IR35 specialist or contractor insurer and discuss how you want to work.
However, do not feel pressured to sign up for insurance until you have shopped around and can be reassured that you are getting what you think you are paying for (i.e. IR35 legal coverage, limited liability insurance, income protection or critical illness cover). Ask questions flat out by using scenarios, that should help you decide which insurer and policy is best for your needs based on the type of work you want to do and under which freelancer type.