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With the 2021 rollout of IR35 reform in the private sector now a certainty, contractors will soon lose the right to decide their tax status when engaged by medium and large businesses.
On 6th April 2021, this responsibility will be transferred to hiring organisations, with the IR35 risk set to shift to the fee-paying party in the supply chain. This is similar to public sector changes enforced in 2017.
Needless to say, contractors are concerned that businesses aren’t capable of accurately determining IR35 status or will adopt a risk-averse approach to the changes, meaning opportunities to work outside the legislation will become limited.
But while contractors will be forced to relinquish control of their IR35 status in due course unless they are engaged by a small private sector company (that is exempt from the changes), there are a number of steps independent workers can take to safeguard their tax position.
In this article, we’ll focus on what you can do to protect your IR35 status in the lead up to IR35 reform on 6th April 2021.
While many businesses will now have contacted contractors to discuss with them the incoming reform, contractors yet to hear from their client or agency don’t need to wait for them to open up a dialogue.
Should a contractor still be in the dark about how their client and or agency intends to manage IR35 reform, starting the conversation and stressing the importance of a measured approach to the changes could prove key in ensuring fair and well-informed IR35 status decisions.
Through Qdos’s work alone, over 2,200 businesses will be in a position to make accurate IR35 assessments, allowing thousands of contractors to operate outside the scope of the legislation.
That said, worrying reports of blanket assessments and contractor bans continue to circulate. For contractors who have been subject to blanket IR35 determinations or those worried their client will take this route, it may be worth speaking with fellow contractors and approaching the engager together to outline the benefits of allowing for legitimate outside IR35 working.
Collectively, independent workers have a stronger, louder voice and one that businesses are more likely to listen to.
By April 2021, in most scenarios contractors will not have the power to decide their own IR35 status. However, that’s not to say they can’t make it difficult for their client to place them inside IR35. Contractors may be able to achieve this by collecting a wide range of ‘evidence’, demonstrating they are a genuine business owner and not a disguised employee who belongs inside IR35.
Independent workers should hold onto email exchanges that show the engagement does not in any way resemble employment. Anything indicating that key factors such as Mutuality of Obligation (MoO) isn’t present, that a Personal Service isn’t provided and that the client doesn’t Control the working relationship could prove vital. As could setting up a business website, holding business insurance policies and even owning branded stationery.
A Confirmation of Arrangements (CoA) is a document written by the client that shows each party in the supply chain is in agreement of a contractor’s IR35 status.
While it may become increasingly difficult to obtain a CoA from a hiring organisation, given they will soon be exposed to the IR35 risk, if a contractor manages to secure one, it should in theory make it difficult for clients to change their mind as reform approaches. You can learn more about the benefits of a CoA here.
An IR35 contract review carried out by an independent expert offers an objective and informed assessment of status. If a contractor is currently working outside IR35, having a contract reviewed by a third-party will strengthen their position. A specialist will also be able to advise on changes to the written contract which, if agreed on and implemented as part of the working practices, will demonstrate a contract for services, and one that compliantly sits outside the legislation.
In the lead up to reform, concerned contractors should consider presenting to their client a recent IR35 status review conducted by a trusted expert. An independent assessment further evidences IR35 position, which may be invaluable in a contractor being placed outside the rules.
Perhaps as important as an IR35 status review is a working practices review. While a contract assessment will consider the written terms of the engagement, a working practices review will examine the reality of the service provided, day in day out. This is often scrutinised by HMRC in the event of an IR35 investigation, given it may offer a truer indication of IR35 status.
With this in mind, contractors looking to protect their tax position before changes to the off-payroll working rules are enforced may want to obtain a working practice review. Similar to an IR35 status review, this could strengthen a contractor’s hand when presented to clients.
For more information regarding your IR35 status and to hear how Qdos can help ensure your compliance, please contact our IR35 experts on 0116 269 0999 or email [email protected].
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