Is there an IR35 solution for next year’s changes?
After MPs gave changes to the off-payroll working rules the green light in Parliament recently, there is now no turning back as far as IR35 reform in the private sector is concerned.
These unpopular changes, which will see medium and large businesses begrudgingly tasked with administering the IR35 status of contractors, will definitely land on 6th April 2021, after a Coronavirus inflicted 12-month deferral.
Needless to say, contractors are deeply concerned about this reform. After similar changes introduced in the public sector in 2017 resulted in many inaccurate assessments and risk-averse decisions, many independent professionals are bracing themselves to be placed inside IR35 wrongly or left with no option by their clients but to work as employees.
So does IR35 reform mark the beginning of the end for contracting via a personal service company, as has been speculated? Or will, after some initial teething problems, private sector businesses learn lessons from mistakes made in the public sector and cope better? And what can you do as a contractor, if anything, to get ready for the changes? In other words, what are the IR35 solutions for next year’s reform?
Let’s take a quick look…
Reform can be managed
As needless as the changes are, by taking the right steps businesses can in fact manage IR35 reform, and compliantly work with legitimate contractors outside the IR35 rules. While reports of contractor bans continue to make the news (and for good reason too), it’s thought that there are many firms wanting to continue engaging genuine contractors post-April 2021. For example, our IR35 partner, Qdos, is helping support well over 2,200 businesses, which will allow for tens of thousands of outside IR35 opportunities at least after the arrival of reform.
Businesses must prepare
Even so, the lead up to 6th April 2021 is crucial. To accurately assess IR35 status from next year, businesses have been advised by experts to prepare immediately. After all, it was the rushed and panicked response from public sector bodies that resulted in risk-averse assessments which saw many genuine contractors unfairly placed inside IR35, where they are effectively taxed as an employee.
When mapping out a strategy for the changes, businesses need to avoid blanket IR35 assessments. These see all contractors placed inside the rules irrespective of whether their contract actually belongs there. Other than being simply unfair, blanket decisions are also non-compliant, meaning firms that take this approach will be held accountable by HMRC.
Companies should carry out individual IR35 status reviews and avoid HMRC’s flawed and unreliable Check Employment Status for Tax (CEST) tool.
Contractors’ IR35 solutions
It isn’t just clients and recruiters that need to get ready for the changes, though. As a contractor, you should too, despite the fact that from next April you will no longer decide your IR35 status unless you’re engaged by a small private sector business.
But what are contractors’ IR35 solutions? It should go with saying that if you aren’t already, it’s important to be confident of your IR35 position before your client assesses it. With a firm idea of your tax status, you can either help advise your client or should you be placed inside the rules, challenge this decision with greater authority. An IR35 status review carried out by an independent specialist who will provide you with this information, following an in-depth examination of your written contract and working practices.
Other than this, what else? If your client hasn’t contacted you to discuss the reform, don’t hesitate to make the first move and stress the importance of them making fair status decisions – perhaps even persuade your fellow contractors to make this point to them too.
In addition, give your client less of a reason to place you inside IR35 – focus on the key IR35 status tests, whether the right of substitution or Personal Service, Control or Mutuality of Obligation (MOO). If you’re unsure about the intricacies of the legislation, speak to an IR35 specialist, who will review your contract and advise you on ways your outside IR35 position could be strengthened.
The thinking here is that with a contract that clearly belongs outside IR35, the chance of your client placing you inside is reduced slightly. Granted, it’s unlikely to stop businesses from blanket placing contractors inside IR35, but it may prove vital for contractors who work with clients not taking this approach.
As you may have gathered, there are certain practices and IR35 solutions that contractors and businesses are encouraged to adopt in the lead up to 6th April 2021 – which may prove to be one of the most defining dates in the history of contracting.
With over 20 years’ experience in supporting contractors, QAccounting is one of the UK’s leading contractor accountants. Offering a range of trusted accountancy services, including IR35 contract reviews through our partner, Qdos Contractor, we are rated 9/10 by contractors. To learn more about our IR35 contract reviews or any of our accountancy services, please request a callback – one of our friendly and knowledgeable accountants will be in touch.
Corporation Tax Rate Changes
Rishi Sunak has proposed a number of changes to the way that Corporation Tax will be calculated and applied. Learn more.
Autumn Statement – Headline Changes
Autumn Statement – Headline Changes
Extracted from the ACCA Guide to the Autumn Statement 2022
Why Freelancers Should Hire an Accountant
In the world of work, freelancing is an increasingly popular option. The promise of flexibility, unlimited earning potential and complete control over the way you work is a hugely attractive prospect for many.
Although freedom is one of the big draws of the freelance lifestyle, there’s still plenty of financial responsibilities that come with it that can really eat into your time and profits.
But do freelancers really need the services of an accountant? Let’s find out.