What Is The Answer For IR35 Reform In The Private Sector?

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.

QA_57

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.

More Blogs

Who pays corporation tax in the UK?

If you’re looking for information about corporation tax in the UK, explained in an easy-to-understand way, you’ve come to the right place. Read on to find out who pays corporation tax in the UK, how it is calculated and filed, the penalties for non-compliance, and top tips to keep on top of your corporation tax obligations.

Accounting Team

Why choose a specialist e-commerce accountant over a general accountant

Are your ecommerce sales soaring, but your profits aren’t increasing as much as you’d like? Are you worried that you may not be setting enough aside to pay your tax bill when the time comes? If you’ve been asking yourself any of these questions, it’s likely that you’ve already decided to look into hiring an accountant. The number of accountants out there can seem overwhelming, and it can be tempting to make your choice based primarily on price. However, can you be sure that a general accountant fully understands your type of business? That’s where specialist ecommerce accountants come in.

Accounting Team

The benefits of using an accountant for small business

Being a small business owner means wearing many hats. With so much to do, it can be challenging to stay on top of it all. To help ease the load, many entrepreneurs turn to accountants for extra support to ensure the financial well-being and overall success of their businesses. Serving as financial custodians, accountants for small businesses play a crucial role in maintaining accurate and compliant financial records, ensuring adherence to the complex regulatory landscape. Beyond the traditional scope of bookkeeping, they are instrumental in strategic financial planning, offering insights into budgeting, cash flow management, and tax optimisation. Accountants act as advisors, guiding small businesses through economic uncertainties and helping them navigate changing tax laws. Their expertise is not only pivotal in avoiding compliance issues and potential audits but also in providing essential support for sustainable growth.

Accounting Team