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IR35 Reform is Going Ahead as Planned: What Contractors Should Do Now

IR35

The House of Commons has voted against an amendment which would have delayed private-sector IR35 reform for two years, meaning the controversial reform is set to go ahead as planned in April 2021. The reform has been expected since similar measures hit the Public Sector in 2017, so we’ve been living with it for a long time. The expected date has been pushed back already, and it’s tempting to hope that this situation might continue, but unfortunately this is now extremely unlikely.

Download our FREE Guide to Demonstrating You're Outside IR35>>

The Finance Bill  2019-20, which includes the private-sector reform, has passed through to the Report Stage and proposed amendments were comfortably defeated. The Government desperately needs to increase tax receipts, and they see IR35 reform as a way of doing this. There is no realistic chance of further delay, and certainly no hope the reform will be dropped. The industry now has just a few months to adapt and adjust in an attempt to control the damage.

What does this mean for Contractors?

From April 2020, unless your client is classed as a small private company, they will become responsible for your IR35 status.  This means you will no longer be responsible for your own IR35 status. If the  client finds that you’re inside IR35, the “fee payer” which is whoever pays your limited company for the work, will have to deduct PAYE tax and NICs from their payments. Assuming the rate stays the same, this will significantly reduce the amount of money you take home.

What should contractors do now?

At first glance, it might look like there’s nothing you can do, and indeed many contractors are feeling quite helpless. While it’s true that the IR35 determination will be out of your hands, that doesn’t mean there’s no useful action you can take.

Know your correct IR35 status

At the moment, if you’re contracting in the Private Sector, you are responsible for determining your IR35 status, at least in theory. It’s always been necessary to know what your correct status is, and gather evidence to support it. This will be even more important in the run up to April 2021, as end clients consider their approach to assessments, and the additional risk to their business.

Best practice is to get each new contract reviewed by an independent expert, so you can be sure you’re getting it right, and you’re aware of any potential issues. This will also give you strong evidence if your status is challenged by HMRC.

This will also make it easier to defend your IR35 status in discussions with your client, and a detailed report from an expert supporting your outside status could help address their concerns.

Gather Evidence

You will also want to gather evidence to support your status. This should be an ongoing process that continues as a natural part of contracting. For example, Keep evidence that a fellow contractor has agreed to act as a substitute at your cost, emails informing your client that you’re working from home or remotely, or evidence that you’ve left a client site due to an outage, rather than accepting alternative work.

For more detail on how to evidence your IR35 status, download our Guide to Demonstrating You’re Outside IR35.

Talk to your client

If you’re likely to be working for the same client in April 2021, it’s important to talk to them about their plans. It might be possible to agree a Confirmation of Arrangements, where you and the client agree on your current status and document the reasons for that decision. This will make it less likely that the client will change your status when they assume responsibility for it.

If your client have not yet begun to prepare, it’s possible that they are not aware of the importance of these changes. It’s likely that engaging contractors is a small part of their business, so they might not be aware of the issues in the same way you are as a contractor. If they’re in this position, encourage them to contact an IR35 compliance expert like Orange Genie Compliance, who can help them assess their position and formulate a measured response.

If your client has already made their decision

In the run up to the expected deadline in April 2020, some end clients made internal policy decisions that they would no longer engage with PSCs. Despite the delay, many have proved unwilling to reverse those decisions, which means you could already be effectively forced inside IR35 because of your end client’s policy. If this is the case, it’s still worth speaking to your client. They now have more time to assess the situation and prepare, and they may decide to revisit their policy and consider the cost savings and strategic benefits of engaging with PSCs.

Consider your options

If and when your client decides that you’re inside IR35, it’s important to realise that you have options, and it’s important to consider carefully, so you can make the best decision for you. You might decide:

  • To accept the client’s assessment and switch to a PAYE solution, like umbrella employment. If possible, you might request an uplift to the rate to offset the reduction in your take home pay.
  • To continue working on the contract, and appeal the decision through the “client led disagreement process” that they are required to have in place.
  • To look for an alternative “outside” contract.

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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