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IR35: Where are we now?

IR35

IR35 reform has now been in place for over six months, and there are signs that the contracting industry is beginning to adapt and adjust. In this article we’re looking at the current market position, and what it means for contractors like you.

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Early compliance issues

When the reform was first implemented, many end clients responded by assessing all their contractors and inside IR35, or by refusing to engage with PSCs. This meant many contractors who believed they should have been outside IR35 were forced to pay PAYE tax and NICs, which reduced their take home pay and made contracts with those clients less attractive.

This could have been partly due to the timing, as the pandemic response was demanding resources and attention when the reform was first implemented.

Decisions are now being revisited

Possibly because they now have the necessary time and resource to devote to it, or maybe in response to recruitment issues as the UK economy begins to open up, some end clients are revisiting their response to IR35 reform and as a result we’re seeing more contractors being able to work outside IR35.

Ongoing reviews of IR35

There are two ongoing inquiries into the implementation of IR35 reform, being conducted separately by the House of Lords and the National Audit Office. Most experts have little hope that either inquiry will result in meaningful changes to IR35, given that the House of Lords has already issued a damning report advising urgent and sweeping change, and this has apparently been ignored by government. Contractors must continue to operate as if IR35 will remain in its current form, as all indications are that it will. 

Best practice for contractors

Even though your IR35 status for most contracts will be your end client’s responsibility, it’s important to follow best practice and gather evidence in support of your status. This will give you the best possible chance of working outside IR35, and protect you and your client if your status is ever challenged by HMRC.

For example:

  • If you have a right to substitution, create and maintain a list of contractors who have agreed to act as a substitute for you if needed.
  • Add a location to your timesheet and/or invoice to demonstrate control over where you work, and retain any emails to clients where you inform them they you’ll be working from home
  • Retain evidence of additional work being offered and accepted or rejected during and after contract periods. If you accept additional work, issue a new contract and schedule, detailing the project and period.
  • Where you appear on the client’s staff and phone lists, ensure you’re identified as an independent contractor
  • Don’t request time off like an employee would – politely inform your client of any absences, and again retain evidence of this communication
  • Don’t take part in the client’s appraisal processes, manage junior staff or report to a line manager at the client.

The best way to operate if you’re outside IR35

Of the common compliant options, most truly independent contractors will be better off trading through their own Limited company. The ability to set your own salary and dividend strategy according to your accountant’s bespoke advice usually makes the Limited route the most tax efficient option, as well as having a number of other important advantages.

If you’re still sometimes inside IR35

If you work on both inside and outside IR35 contracts, you’ll need to find a solution for when you’re inside IR35. For most contractors, umbrella employment is the best “inside” solution, but switching between umbrella and your limited company can be problematic and complex.

Using Orange Genie Complete, our accountancy clients can switch seamlessly between trading through their Limited company and employment with our umbrella company, which ensures they’re always using the best option for their circumstances on a contract-by-contract basis.

If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.

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