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IR35 Off Payroll Changes to the Private Sector are Delayed until April 2021

IR35

These are words I never really believed I would be able to publish, especially so close to the implementation date and yet here we are!

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As with all headlines there are two sides to a story. On the one hand this appears to be good news; at last a sensible approach from HMRC given all the objections to the new rules, the criticism from the House of Lords Committee and now the economic crisis we face as we get to grips with what Coronavirus means for us all.

But on the other hand, how helpful is this late change of heart? Many, contractors have already been “benched” by end clients no longer engaging with Personal Service Companies (PSC’s), numerous workers have terminated contracts and re-engaged as PAYE or through an Umbrella company.

End clients who have invested time and money in preparing for April 2020 are likely to want to avoid undoing all of their work and will want to proceed as planned. Only time will tell how this plays out, but here are our initial thoughts on what we might see happen next. The unravelling begins…………

End clients who took blanket policy decisions

If your end client was one who decided to no longer engage with PSC’s you may be facing termination of your contract at the end of March or may already have left. This delay to the Off-Payroll rules provides a golden opportunity for these organisations to re-think. It is perfectly possible to structure a contract and working relationship to be “Outside” IR35 and now is the time for these organisations to get grips with what this should look like.

Will these end clients really re-assess and change their minds? They may have to. Many have seen the impact of a blanket decision and suffered both from a loss of resource and an angry contingent work force. They have one of two choices, stand firm and risk losing all the best talent as they become commercially unattractive to contractors or make the effort to do things properly.

If you are currently engaged through your PSC with such an end client, we would expect to see a number of you actually have contract extensions to allow your end client to continue to take advantage of the flexible workforce. Of course, current economic pressure may impact this decision more than the IR35 delay. Where contracts have already been terminated, we don’t expect to see an immediate re-engagement of PSCs’ at this time, but in due course we think numbers will once again rise as engagers become more confident in their understanding of how to operate IR35.

Already taken a PAYE position or engaged through Umbrella Employment

If you have already accepted a permanent position or employment through an Umbrella and terminated your PSC contract it is difficult to see how you can unravel this and remain at your current end client. There will also be contractual notice periods and terms to consider.  We believe it is highly unlikely that end clients will terminate the new arrangement in favour of re-engaging with your PSC. From your perspective, you will remain responsible for your IR35 tax position in 20/21 and if you try and now engage on an Outside basis, with the end client that you are currently employed by, you increase your risk of being found Inside IR35 should HMRC investigate. You could be creating the classic “Friday to Monday” scenario that IR35 was designed to address.

End clients have worked hard to consider the impact IR35 on their business and made decisions accordingly that have knock on operational and commercial effects. Remember the changes are only delayed, not cancelled, so we think it unlikely end clients will be prepared to undo these new arrangements.

Remind yourself of the reasons you accepted the PAYE or Umbrella role in the first place. If your role would genuinely fall Inside of IR35 you may want to stay as you are, after all you would only have to go through the same process again in a years’ time. Alternatively, you may feel that there might be an opportunity for you to seek an Outside IR35 opportunity elsewhere. We would recommend that if you do that, you take expert advice when structuring the contract and relationship to ensure you are future proofed for April 2021.

Been found Inside IR35 by your end client

Many contractors have found themselves assessed as Inside IR35 and have received Status Determination Statements (SDS) from their end clients. Without the new legislation, SDS’s will have no legality and the end client has no obligation to determine your IR35 status, and for the next year at least, no risk of getting it wrong!

This is a difficult situation. Responsible end clients have determined Inside IR35 positions for very good reasons – these reasons will not have changed overnight. We know that many contractors don’t agree with those determinations and will likely want to continue in their PSC on an Outside IR35 position.  As a contractor you may now be in possession of information that demonstrates your Inside IR35 position and you are at risk if you ignore this.

End clients face a difficult challenge. Having assessed you as Inside IR35, they may be very uncomfortable engaging with you Outside, but they will also face commercial challenges where competitors will accept you continuing to use your PSC in this manner.

Can your end client force you to find yourself Inside IR35? Not for tax year 20/21.

Should you operate Inside IR35? Yes, if all the facts point to that position being Inside. You risk substantial fines and penalties if you operate Outside IR35, knowingly being Inside.

However, if you feel strongly that your position is Outside IR35 and you have evidence to support this you can try and hold further discussions with your end clients. They have time to work with you to amend contracts and working practices to allow Outside contracts to continue.

It has never been more important for contractors to understand their own IR35 position and the weighting of the relevant IR35 status indicators. Read more here.

If you have any questions or if we can help in any way please call our expert team on 01296 468 483 or email info@orangegenie.com

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