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What do contractors need to know about approaching IR35 reform?

Ever since the IR35 rules were rolled out two decades ago, contractors have feared this complicated tax, that was introduced with the aim of stopping ‘disguised employment.’ But now, perhaps more than ever, contractors are particularly concerned about the legislation. This is because on 6th April, unless they are engaged by a ‘small’ private sector company, contractors will lose the right to decide their own tax status. The task of assessing IR35 status will be handed to the medium and large businesses engaging these workers. As you might already know, contractors haven’t been able to set their own IR35 status in the public sector since 2017, which has resulted in plenty of incorrect status decisions.

So needless to say, contractors are keeping a close eye on developments as we draw nearer to the arrival of the unpopular IR35 reform. In this article, we’ll update you on everything you need to know as we approach IR35 changes

IR35 review has commenced

Better late than never, the IR35 review that was promised by the Chancellor before December’s General Election was opened on 8th January. However, upon its launch, the Government was heavily criticised because it is made clear in the review details that the consultation is being held to ensure the “smooth implementation” of reform. Unfortunately, the Government does not look like it’s considering a delay or U-turn. The review will close mid-February, less than two months before the changes are extended to the private sector.

Reports of IR35 ultimatums continue

With the countdown on to reform, reports continue to surface that a number of financial services companies are making blanket IR35 decisions or telling contractors they must become employees or leave. Frankly, this isn’t what contractors want to hear. That said, the action taken by the likes of HSBC, Lloyds, Barclays and several other firms isn’t thought to reflect what is happening across the entire private sector.

But it’s not all doom and gloom

It should also be pointed out that many private sector firms are expected to be prepared for incoming changes and will carry out IR35 contract reviews on a case-by-case basis. The latest news from our trusted partner, Qdos Contractor, suggests that through its work alone, more than 100 end-clients and agencies will assess status fairly after April, equating to tens of thousands of outside IR35 contracts.

Warnings about IR35 workarounds

Contractors have been warned that forming a consultancy with other contractors as a workaround to the reform poses a threat. The thinking here is that by creating a consultancy and agreeing to a Statement of Work (SoW) with the client, the consultancy will decide IR35 status rather than the client. While this is technically allowed, contractors are advised against dressing up a contractor engagement as a consultancy agreement – and this is something HMRC is likely to be monitoring closely.

Reform will go-ahead

Any contractor accountant worth their salt should advise contractor clients that – at this point in time – everyone must work off the basis that changes will be introduced. A delay seems very unlikely now, particularly because the Government is focusing on how it can roll out the changes in the recently launched review.

IR35 contract reviews still valuable

HMRC has often reiterated that IR35 reform will not be retrospective, meaning the tax office will not enquire into contracts that transfer from outside to inside IR35 when the changes are enforced. However, HMRC did say it could investigate scenarios where it suspects “fraud or criminal behaviour.”

The wording of this statement leaves the door ajar for HMRC to effectively do what it wants. Therefore, in the months leading up to April 6th, IR35 contract reviews remain an important service for contractors. And when reform does finally land, an independent IR35 status review could be crucial in ensuring you are placed outside the scope of the legislation by your client.

QAccounting diary

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.