It’s now certain that IR35 reform will hit the Private Sector in April 2021. Whilst we are disappointed that these changes are being implemented, contractors are nothing if not pragmatic so now is the time to prepare. In this article we’ll look at the action contractors can take to maximise their chances of working outside IR35 after April 2021.
Find out what your IR35 position is
Before you can decide what action to take, you need to understand your present position. IR35 is a complex piece of legislation, so we’d advise any contractor who trades though a limited company to get an independent assessment from an IR35 specialist. Your assessment should be revisited for each new contract, and certainly for each new client. This has always been sound advice, but it’s even more important in the context of private-sector reform.
Your assessment should include the reasons for your IR35 status and advice on how your position could be strengthened, for example with amendments to your contract, or changing your working practices. Whether you’re assessed as inside or outside IR35, make sure you understand why and that you can evidence your position if necessary.
As part of the process of finding out your position, it’s also worth using HMRC’s online Check Employment Status for Tax (CEST) tool. CEST has been criticised since its launch in 2017 and you’re not required to use it or accept the answer it gives you. However, some end clients may rely on it, so it’s advisable to at least find out what it says. The earlier you take the test, the more time you have to seek advice and make changes if you don’t get the “right” answer. HMRC have promised to stand by the results of CEST, but only if they agree that the information entered is correct.
Once you know your IR35 status, take appropriate action
Once you’ve received specialist advice and you’re clear on your IR35 position, it’s important that you listen to that advice. A clear “outside” assessment is your cue to gather as much evidence as you can to support your status. Refer to our Guide for details of what evidence will be helpful to you.
If you’re currently inside IR35
If your independent assessor believes you’re clearly inside IR35, we strongly advise that you act on their advice. Operating as if you’re outside IR35 when you’re actually inside could be very expensive in the long term. Additionally, if the expected reform does go ahead and a client assessment reveals your correct status, this could prompt HMRC to investigate and your position would be quite precarious.
Engage with your end client
Recruitment agencies and end clients are concerned about IR35 reform as well. An incorrect “outside IR35” assessment will carry a risk for them, while “inside” decisions will create extra work and increase their costs. It’s therefore very much in their interests to make sure your status is assessed correctly.
Assuming you expect to be working for the same agency and/or client in April 2021, it’s a good idea to speak to them now about how they intend to handle IR35 reform. Speaking to them early will allow you to address any concerns they have and make sure they understand your position if and when they have to assess your IR35 status.
Confirmation of arrangements
A confirmation of arrangements (COA) is a document that confirms all parties in the supply chain are in agreement about your IR35 status. Drawing one up with your client as part of your discussion will make is less likely that they will change your IR35 status when they become responsible for it.
Involve your fellow contractors
If the client has a large contingent workforce, it makes sense to discuss the reform with your fellow contractors and collaborate with them in discussions with the client. Collectively, you’ll have a stronger, louder voice that businesses are more likely to listen to.
What if your client insists that you work inside IR35?
This is the situation that most contractors are concerned about; if your client is made responsible for assessing your IR35 status, what if they get it wrong? As we’ve said, we believe a well-informed client will want to assess your status correctly, so your best defence is to collaborate with your client and make sure they’re well informed. If they have concerns, your independent assessment and the evidence you’ve gathered could go a long way to resolving them.
Despite your efforts, your agency or client may insist that you work inside IR35 or use an umbrella company. Depending on your relationship, you might be able to discuss it with them, and they might be prepared to reconsider. Where the client is not prepared to change their assessment, or where they’ve made a policy decision not to engage with PSCs, you might consider seeking an alternative contract.
If you decide to accept the client’s decision, you will see a reduction in your take-home pay and you might need to negotiate an uplift to your rate to offset this.
Should you close your limited company?
Umbrella employment is often the better choice if you’re working inside IR35, while if you’re working outside IR35, your limited company is still the most tax-efficient way. Your decision on whether or not to close your company will depend on whether you expect future contracts to be outside IR35.
If you work for several different clients, you might find yourself sometimes working inside, and sometimes outside, so you may need an easy way to switch between trading through your company and being employed by an umbrella.
If you’re lucky enough to be a client of Orange Genie Accountancy you can switch seamlessly between using your limited company and umbrella employment at no additional cost, which makes it much easier to manage a “mixed-status” situation.