As 6th April 2021 approaches and clients begin issuing status determinations ahead of the new rules, many contractors may be found to be ‘inside IR35’.
Having your contracts assessed for IR35 status can be a nerve-wracking time for contractors. At the end of the determination process, you will receive one of two determinations based upon a multitude of factors concerning both the written terms and the working practices of the engagement. You will either receive an outside or inside determination.
An ’outside IR35’ status indicates that you are providing the services of a genuine contractor for that engagement. An inside determination, on the other hand, indicates that you are considered to be working as an employee for tax purposes and working inside the scope of the IR35 legislation.
Whilst being inside of IR35 certainly does not leave you at a standstill, if you wish to work through your limited company it may prove a stumbling block. Many businesses will not be willing to pay for inside IR35 roles through limited companies due to the complex nature of administering the payroll. Because of this, choosing to appeal the initial inside IR35 determination would be a wise first step. After all, contractors naturally want to be working outside IR35 wherever possible.
Once you have been determined as inside IR35, your first step is to consider whether you wish to raise an appeal against the initial determination.
If you truly believe that the IR35 determination given is wrong, you may choose to appeal that decision. This client-led disagreement process gives the end client 45 days to respond to a contractor should they disagree with their initial IR35 determination.
In this response, they must provide their reasoning for the original determination and either confirm the original determination or change that decision and, where necessary, provide a new determination altogether. Should a client neglect to respond to a genuine appeal within the 45-day window, the IR35 liability may transfer to them, meaning that the end client becomes the fee-payer for that engagement.
This first step could prove a lifeline for contractors and as such, we encourage its use if you have grounds to believe that the initial determination is wrong. Otherwise, you have three possible avenues you could consider – all of which are dependent on your personal circumstances and preferences.
After IR35 reform is implemented on 6th April 2021, the majority of roles will be advertised with an indicative IR35 determination of either inside or outside. Based on these, you can proactively choose to only accept those roles that have an outside determination.
Whilst this may limit the opportunities available to you somewhat, you should not let this discourage you. Here at Qdos, we are working with many businesses who are proactively seeking compliance and putting in place the necessary processes for IR35 reform. A review of the IR35 policy sharing service, offpayroll.org.uk, will also give you an indication of businesses applying fair determinations (whilst this doesn’t ensure you an outside-IR35 status).
It’s important to remember that you do not have to close your company if you are determined to be inside IR35 by your client.
IR35 is determined per engagement so you may find that your status changes for each contract. You can decide to simply take each engagement as they come by choosing a more combined approach. This way you can keep your limited company in place for those engagements that are outside IR35 and still have the ability to switch to umbrella services or PAYE for those engagements that are inside IR35.
In the event that your engagement is determined as inside IR35 and should it be likely that the nature of your services will be inside IR35 in most cases, you may be left with little choice but to close your limited company. You’ll also need to consider the impact of doing so on your insurance risk if you choose to do so. Whatever your circumstances, you have two main choices should you decide to close up shop.
Although a viable choice when found inside IR35, sometimes contractors are left feeling cornered into closing their limited company by their client. Here at Qdos, we believe that the demand for highly skilled flexible workers is on the rise. We hope to see that contractors become the sought-after commodity that their status as professionals deserves. But if you feel contracting is no longer for you, employment is an option you may wish to look into, especially if offered by your client at a relative salary to your current take home.
An umbrella company essentially acts as a middleman and are operated by a third party to act as an ‘employer’ for their contractor ‘employees’. The umbrella company provides a payroll service to its contractors and, according to timesheets submitted, will pay out once the necessary deductions have been made.
Many agencies and/or clients will have certain umbrella companies, such as Parasol, on their Preferred Supplier Lists (PSLs) and may require that any inside-IR35 determinations result in the use of an umbrella company.
Umbrella companies do incur a margin but agencies must produce a Key Information Document (KID) which is upfront about any charges before signing your contract.
Of course, there are many more options that you may decide to take, such as moving abroad, retiring, or expanding your business further. Of the 1,453 contractors we surveyed in December 2020, 56% of those who had received a determination from their client, had received an outside IR35 determination. So, we remain optimistic that the majority of contractors will be able to continue contracting as normal long after 6th April.
With over two decades’ of experience specialising in IR35, Qdos are leading specialists on the IR35 legislation, completing over 150,000 status assessments and successfully handling over 1,600 status enquiries on behalf of contractors. For more information on how the IR35 determination process will work after 6th April 2021, take a look at our Contractor Guide to IR35 Reform.
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