With changes to the off-payroll rules coming in April 2020, many contractors are concerned that their clients may take an apparently “risk averse” approach and treat all contractors as if they are inside IR35. We don’t believe this is a low-risk strategy, but experience suggests that at least some end clients will adopt it. In this article we’ll look at where this leaves you as a contractor, and what you can do about it.
What we mean by a “blanket IR35 decision”
From April 2020, your end client will be responsible for determining your IR35 status. The best and least risky response to this is for end clients to base their decision on an individual assessment of each contractor’s status. A “blanket assessment” is where an end client decides to treat all contractors as being inside IR35, rather than assessing each one individually.
Why this is a bad idea for your clients
An inside IR35 decision has two main consequences. First, employer’s NI must be paid, which means either the recruitment agency or end client will effectively have to pay more to engage contractors. Secondly, PAYE tax and NICs will have to be deducted from the contract rate before it’s paid, which means the contractor will take home less money from the same rate. As we saw in the Public Sector, contractors are generally unwilling to do the same job for less money, and will choose contracts and clients who allow them to work outside IR35.
Where contractors really are working inside IR35, end clients will have to consider how to deal with the additional cost and risk to their supply chain. However, it’s not advisable to do this unnecessarily, where contractors are genuinely outside IR35, or where simple changes to contracts or working practices could place them outside. Assessing IR35 correctly and helping contractors to work outside IR35 can provide a competitive advantage, while reducing their costs.
Where does this leave you if your client imposes a blanket decision?
If you choose to accept an inside IR35 decision from your client, your income will inevitably drop as PAYE tax and NI will be deducted from your rate before payment is made to your limited company. But is there anything you can do about it?
Follow the disagreement process
The legislation calls for a “client led disagreement process” to enable contractors to challenge decisions that they believe to be incorrect. If the client is complying with the rules, you should have an opportunity to voice your objections, and the client may change their position as a result.
Strengthen your argument
An independent review from an IR35 specialist like Bauer and Cottrell could go a long way to persuading the client of your outside IR35 position. We’d also advise you to continue collecting your own evidence to support your status, even though the decision itself is out of your hands.
Increase your rate
It may be possible to negotiate an uplifted rate to offset the drop in your take home pay. To give you an idea of the value of uplift you might need, the below table shows estimated take-home pay based on a contract rate of £250 per day. Your accountant will be able to advise on your individual situation:
Limited Company Outside IR35
Limited Compant Insude IR35
Consider looking for an alternative contract
You’re claiming to be an independent contractor, and if you’ve exhausted all the other options, it may be time to demonstrate that independence by looking for an alternative contract. There will be opportunities for genuinely independent contracts to work outside IR35 after the reform.
If your client needs advice
Your client is focussed on their own business, and it’s possible that they’re not as aware of IR35 as you are as a contractor. They could be considering making a blanket decision because they don’t understand the consequences, or they don’t know what else to do. If this is the case, compliance experts like Orange Genie Compliance could make a real difference to them, and it might be worth encouraging them to contact us.
If you have questions, or if we can help in any way, please call our expert team on 01296 468 483 or email firstname.lastname@example.org