What are your options when working inside IR35?
While incoming IR35 reform does not necessarily mean that as a contractor you will be placed inside the rules by your engager, there is a risk it could happen. Your client could wrongly assess your IR35 status – due to an honest mistake, through a lack of understanding of the changes or in an attempt to protect the IR35 liability they will carry from Apri 2020. In this post, we take a closer look at the options when working inside IR35.
After seeing public sector reform unfold in 2017, contractors are understandably concerned they will have their tax status wrongly set by inexperienced clients, leaving them taxed at a rate similar to an employee but without the advantage of employment rights. It’s hardly a welcome outcome and is a prospect that is making contractors wonder about their future.
QAccounting is working with recruitment agencies to advise them on the importance of accurate IR35 assessments, so as to reduce the risk of wrong decisions and blanket determinations – which are not compliant. However, given there is a chance you could still be placed inside IR35, it’s important you understand your options.
Are you obliged to stay working on your contract? What can you do to offset the extra cost if you’re placed inside IR35? What should your next move be?
Raise your day-rate
There is speculation that many contractors are ready to raise their day-rates to balance out the cost of working inside IR35. To an extent, this happened in the public sector, with independent workers who, having to accept an inside IR35 determination, were keen to earn back the difference. It’s a perfectly logical response, but one that could jeopardise your contract with clients reluctant to accommodate higher costs.
Work through an umbrella
While it’s inadvisable for clients to present contractors with ultimatums, there is a risk that medium and private sector businesses will encourage individuals to operate through umbrella companies. In short, the reason for this is that contractors effectively become an employee of the umbrella company, therefore meaning the IR35 rules do not apply to the end-client.
Umbrella companies serve a purpose in certain situations, but it’s worth bearing in mind that in addition to paying more in tax, contractors will also need to pay a fee to the umbrella for organising and managing your finances.
Do nothing and take the hit
You aren’t required to do anything. If your client believes the service you provide reflects employment and not self-employment, you can continue working through your personal service company and inside the IR35 legislation. You will, however, take a significant financial hit, which is why this option is perhaps one of the least appealing. If you want a roundabout idea of the cost of working inside IR35, punch your day-rate into this IR35 calculator.
Cornered into PAYE
There is a level of misinformation about IR35 reform which has led to fears among contractors there will be an overall trend towards employment. While becoming an employee is, of course, an available option to contractors should they be deemed inside IR35 by their client, by no means should you be cornered into going PAYE.
Contracting in the UK is still valued by the majority of businesses as a means of gaining vital skills on a flexible basis. IR35 reform might be a bump in the road, but in the long run, these changes are unlikely to make the private sector stop engaging contractors. There is too much at stake for companies with growth plans and for the UK economy. And with the right guidance and by prioritising accurate IR35 assessments, medium and large private sector businesses will be in a position to set status accurately.
It’s important to know that should feel you’ve been wrongly placed inside IR35 by your client, you are perfectly within your rights to challenge this decision. A smart way to go about doing this is to have your contract reviewed by an IR35 expert, who will be able to offer you objective advice backed up with plenty of case experience, which you can then confidently return with to your client.
Should this client still insist that your contract belongs inside IR35, there will be other opportunities to work outside the scope of the legislation, with other businesses. Early signs suggest that plenty of private sector companies have now got the message and are preparing for next year’s changes, which means they should be well-placed to make correct status decisions.
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