Posted 10 July 2018 By Sam Dale, Client Portfolio Manager
You may well have heard some rumblings about proposed changes in this area so I thought you’d appreciate an update. The first thing to say is that it’s important not to be too concerned about this proposal; whilst the legislation may well be enacted, the eventual outcome could well be positive.
You are probably aware that, from April 2017, IR35 changed for any contractors providing services in the public sector. Rather than the contractor being responsible for determining their own IR35 status, the onus shifted to the end client. In the public sector, the end client is therefore now responsible for determining whether a contractor falls within IR35. This measure brought a significant amount of criticism, partly because the end client isn’t fully informed about an individual contractor’s business, partly because public sector bodies are making mass decisions rather than individual decisions, and partly because the rules simply don’t work from an accounting perspective.
The long and short of it is that government departments put large numbers of contractors onto IR35 with little or no thought. As you know this has significant tax consequences so has in turn initiated contractors leaving the public sector, causing government bodies to be short staffed.
Driven by the “positive” impact (in that a lot more contractors now pay taxes within IR35), and by the need to get contractors back working in the public sector, HMRC are looking at extending the legislation so that it will apply to all service providers, not just those in the public sector. There is currently a consultation in progress with interested parties and I would recommend that you have your say: https://www.gov.uk//government/consultations/off-payroll-working-in-the-private-sector . The deadline for responses is 10th August.
Communication with your client is going to be the key for this. There is nothing to stop an arrangement being drawn up between the two of you, with agents involved as necessary, which ensures that neither you nor they have any exposure to IR35. Therefore, it’s worth discussing this with your client and/or your agent if you have contact with anyone who might have an influence on their approach to this. They need to be made aware of the impact this could have on those providing services to them, which in turn will impact on their ability to obtain and retain that resource. Primarily, they need to know that they can have a massive influence on how this operates, and simple changes to their contracts could make this whole problem go away.
I am aware that you may have been approached by your agent as they try to gather more information in respect of this. If this happens to you be careful what information you supply to them. It may be that if you stay with the same client, information that you provide now will have an impact on their assessment of your IR35 status in the future. In addition, they may ask you to complete the HMRC “employment status check” tool. Again, you need to be very wary about doing this; the tool has been widely criticised amongst the profession as neither its questions, nor its findings, are in line with IR35 case law. It could easily therefore provide a false result; if your client then uses that result they may put you inside IR35 when in fact you shouldn’t be.
I would always recommend that you have your contract reviewed by an expert. If your client requires evidence/proof of your status, a formal report in respect of this is a much better starting point. If you’d like me to carry out such a review then let me know.
End of the road?
So, is this the final nail in the coffin, and it’s time to give up and return to employment? The simple answer is no.
If the emphasis shifts to the client to make a decision then that makes it their responsibility as well. So if they deem you to be outside of IR35 you’re safe; no more worrying about IR35 at all.
The public sector have, by and large, adopted a better safe than sorry approach. They’re not prepared to take any risks (and are probably under some pressure from the treasury) and are therefore erring on the side of declaring contractors inside of IR35.
Provided communication with clients and agents is good this is absolutely unnecessary. As it’s the terms agreed between your client and your company that decide whether you are within IR35 or not, there is no reason at all for anyone to be declared as within IR35, provided that both parties are happy with it being a genuine business to business relationship. As a result, the key is education. If your client and/or agent is aware how to make this change in legislation irrelevant, then they will get resources on the terms they want and you will get contracts on the terms you want.
Some businesses will obviously be better able to take this on board than others. If some businesses go one way and some go the other, then those adopting a cautious “inside IR35” approach are going to learn quite quickly that they’ve made a bad choice when they struggle to attract contractors to work for them. When taking on new contracts, do bear this in mind. It’s at least possible that the legislation could be put in place as early as April 2019 (although 2020 is more likely); as a result, if you take on a long term contract, there’s nothing wrong with asking whether they would consider it to be within IR35 before you sign on the dotted line.
I will obviously update you as this develops and, in the meantime, if you need further advice or assistance on this then let me know. Similarly, if your agents/clients are lacking a specialist IR35 resource, I’m happy discussing this with them.
To discuss this or anything else please contact Sam Dale on 01793 818300 or send him an email.