The proposed changes to off-payroll working, commonly known as IR35, in the private sector will go ahead from April 2020 and you may already have started to hear some chatter from fellow contractors and even your end-clients.
At Taxevo, we want you to be aware of the support we can offer and help guide you with the steps to take to make sure your IR35 status is assessed correctly from April.
The big change means that the end-client will now be responsible for assessing the IR35 status of a contract with a Personal Service Company (PSC). In the past, you were always responsible for determining your IR35 status. You may have sought professional advice on your status and had a contract review carried out.
To comply with the new legislation, the end-client must produce a Status Determination Sheet (SDS). This will be a written statement outlining whether the end-client deems the contract to be inside or outside IR35 along with their reasoning. This assessment must be carried out on each assignment and they must take reasonable care when doing so.
The IR35 status dispute resolution process is to be led by the end-client. No formal guidance has been issued as to how this will work but the end-client has 45 days to respond. By the end of the 45 days, the end-client must either uphold the original decision or issue a new SDS to all parties. When you appeal you must provide evidence to support your argument.
Remember, the new rules will only apply to medium and large end-clients. So small businesses as defined by the Companies Act 2006 will be exempt. This means that if the end-client meets two or more of the criteria then the new rules do not apply and the PSC remains responsible for determining its own IR35 status (no change to the current situation).
You will soon be hearing from your end-client or agency as to what their approach will be from April (if you have not already). We have already begun to hear the approach that some of the major users of contractors are going to take, especially the banks. Barclays and Lloyds have already said they will not be dealing with those working via PSC.
When you do hear anything from your end-client or agency, please get in touch with us so that we can help you understand your position and what to do next.
If from April you are deemed to be inside IR35 that means that your future invoices will be subject to tax and National Insurance just like an employee. The tax and National Insurance will be deducted at source by the end-client or agency and the result is a decrease in your take home pay of between 20 and 30 percent (depending on your circumstances).
Our experience tells us that most end-clients have little understanding of IR35. They have been advised that they can use the HMRC CEST online tool to determine the status of your assignment. This is a series of questions about your assignment that returns an IR35 status.
The Government has acknowledged that the existing CEST tool needs work. Whilst no details have been provided on what this will entail, it is expected that this will be revealed later in 2019.
Some businesses have taken the approach of making blanket assessments across their PSC contractors, something that goes against the guidance in the legislation that reasonable care must be taken when making a determination.
Much of what we are seeing now has similarities to when the changes came into the public sector back in April 2017. Initially there was an approach that PSC contractors were to be phased out yet in time organisations came to realise that they need those contractors to allow projects to keep moving and they later softened their approach. Now we see public sector PSC contractors working outside of IR35.
You will likely fall into one of two camps. First, you may work for an end-client who no longer wishes to work with PSC contractors. If that is the case then you have a few options such as taking a permanent position, working via an Umbrella solution or looking for work elsewhere.
Second, you may work for an end-client who will continue to use PSC contractors. The important thing then is to understand your status. The outcome on the SDS (make sure you receive this) will determine how you are paid. If it comes across as outside IR35 then you can continue as you work now. If the SDS shows you are inside IR35 you need to understand if that is a blanket assessment or one specifically for your assignment. You have the right to challenge this decision and should provide evidence on why you disagree.
Once you have the SDS that shows an inside position you should talk to us before taking any further action. We can review your contract and help you use the HMRC CEST tool to arrive at the correct assessment of your status. The CEST tool no doubt has its issues but for many PSC contractors it can still arrive at an outside of IR35 result.
HMRC will stand by the decision reached by CEST provided the answers you give are factually correct so hopefully this can be used to reassure end-clients.
Talk to your fellow PSC contractors; make sure you are getting a fair assessment based on your assignment and situation.
One note of caution: be wary accepting a position inside IR35 when you have previously been operating outside of IR35. HMRC have advised they will not look into previous arrangements but HMRC cannot always be relied upon to stick to their word.
Our Plus package includes tax investigation insurance. This covers you against the costs of defending a future IR35 enquiry. This policy is with Market Tax, a specialist in dealing with HMRC enquiries. If you are on one of our other packages and wish to add this cover you can do so for £10 plus VAT a month. Speak to us if you want further information.
We have partnered with SG Umbrella so that you have a different solutions to carry out your contracting work. Therefore, if you are a client of Taxevo you can use SG Umbrella at no extra cost. Our monthly packages include this for free so you can switch between limited company and umbrella solutions.
For more information on SG Umbrella click here or give us a call to explore working through an umbrella in more detail.
The new rules do not change how IR35 should be assessed and for a large proportion of PSC contractors it should not change how they work. The big ‘if‘ here is the way that the status is assessed by end-clients. If they take reasonable care then there is no reason it cannot be business as usual for a lot of PSC contractors. What we must be wary of is the blanket approach to assessment. In this situation you need to stand up and be heard, talk to us and we can give you the advice and support you need to reach the correct status determination.
If you have had a contract review for IR35 and it was found you could operate outside then there is no reason that should change.
For all questions on the upcoming changes, please speak with us to discuss your options.