Private-Sector IR35 Reform: How Contractors Can Protect themselves

IR35

As most UK contractors will be aware by now, the much talked-about private-sector IR35 reform is due to take place in April 2020, and will mean that contractors will no longer be responsible for determining their own IR35 status. This responsibility will pass instead to their end client, so anyone who engages contractors, unless they class as a small private company, will have to assess whether those contractors fall inside or outside IR35.

A Contractor's Guide to Demonstrating You're Outside IR35: Click here to download>>

This is a worrying idea for many contractors, and the chaos that followed the public-sector reform in 2017 lends a stark reality to those worries. The idea that clients may be unable or unwilling to assess IR35 status correctly, that blanket “inside” assessments will cause thousands of contractors to incorrectly pay PAYE tax and NICs, is not just an abstract fear. We’ve watched it happen already, and we know it’s still happening, despite the negative consequences for the Public Sector and the best efforts of industry experts. Many see little reason to imagine that private-sector clients will be any more capable, or less risk-averse than their public-sector counterparts.

But it might not be as bad as it looks

You’d be hard-pressed to find anyone other than HMRC who believes this reform is a good idea, but having been through similar trials before, the industry is better prepared this time. Since the reform was first announced, Orange Genie and other stakeholders have been working to educate clients, agencies and contractors, in an attempt to avoid a repeat of the chaos and consequences of 2017.

It’s also important to realise that, even though contractors will no longer be responsible for determining their own IR35 status, it isn’t entirely outside their control. Their correct status will still depend on their working practices, the contract they signed, and their relationship with the client, and most contractors will have some influence over all of these factors. There are also actions that contractors can take to encourage their clients to assess IR35 status correctly. 

Don’t just wait and worry – take these actions now:

Talk to your clients

It’s in your clients’ interests to assess your status correctly. They don’t want to leave themselves at risk, but they also don’t want to incur unnecessary costs, or make it harder for them to recruit talented people like you. Talking to your client about their plans for dealing with the reform gives you the opportunity to ensure they get the right advice, and given that you both ultimately want the same outcome it makes sense to work with them as much as you can.

As part of the discussion with your client, it might be possible to create a “confirmation of arrangements” document, confirming the current situation and that all parties are happy with your IR35 status. This will make it far less likely that the client will arbitrarily change your status when they become responsible for it in April.

Collaborate with other contractors

Sharing insights and information with your fellow contractors will help keep you better informed about how clients are preparing for the reform, and will allow you to share tactics and best practice. Where several contractors are working for the same client, approaching discussions as a group will help the client understand the importance of the issue.

Check your contract

It isn’t possible to change your IR35 status just by adding clauses to the contract, particularly if they don’t reflect the reality of your relationship with the client, but it does form an important part the determination and it should be carefully reviewed.

Pay particular attention to the presence or absence of a substitution clause. Having the right to send a suitable substitute, rather than being required to complete the work yourself, is a strong indication that you’re an independent business rather than an employee. It’s important that this right is a practical reality, and that the client is not involved in recruiting, approving or paying the substitute worker. Sometimes substitution is not possible, for security or internal policy reasons, but this does not automatically mean you’re inside IR35.

Another contractual element to watch out for is Mutuality of Obligation, (MOO). Where MOO exists, it means the client is obliged to offer you additional work when this contract ends, and/or that you are obliged to accept additional work when offered. The existence of MOO in your contract can severely weaken the case for an outside IR35 determination.

Check your working practices

While the terms of your contract are important, they won’t be given any weight if they don’t match the day to day reality of your relationship with the client. Care should be taken to ensure this reality also supports your case for an outside IR35 status.

In particular, the extent to which the client controls when, where and how you work is important. The more control the client has, the less likely you are to be outside IR35. It’s also important to avoid becoming “part and parcel” of the client’s organisation, for example taking part in appraisals, managing junior staff, using company facilities and attending staff training all potentially weaken your case.  

Get your contract reviewed by an IR35 specialist expert

There are two main reasons to engage a specialist IR35 expert to review your contract. The first is to ensure you’re operating under the correct status. There is no statutory definition of employment, so IR35 determinations are based on case law. This means determining IR35 status can be extremely complex, and it makes sense to get an expert opinion, rather than gambling your financial future on your best guess.

Even if you’re certain of your status, it’s still worth getting that expert opinion, as this acts as strong evidence in support of your status if it’s ever challenged. Your professional review may also give you access to support and advice in dealing with any challenge from HMRC, and it may come with insurance cover for legal costs and other expenses, assuming you followed the expert’s advice.

Demonstrate that you’re in business

It’s important that your business is seen as more than a vehicle to disguise employment. Working for more than one client, undertaking activity to source new work, taking out business insurance, maintaining your own website, having your own office address and using your own branded stationary can all strengthen your case that you’re running a business, rather than behaving like an employee.  

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

Request a Call Back

 

edge promo