IR35 changes are coming in April 2021. Be prepared with our IR35 essential FAQs.
The current rules which govern Private contract IR35 statues will be brought in line with those which govern those within the Public field. Therefore all end-hirers / clients will make the final decision on a contractor’s IR35 status, and they will also be financially liable should they get your status wrong.
What’s not changing?
The way in which a contractor’s status is determined, therefore if you’re legitimately outside IR35 before April 2021, then you will continue to be so afterwards.
If your contract is within the Public sector come April 2021, your end-hirer is already responsible for determining your status, and therefore nothing will change.
If you’re unsure about your current contact, or you’re planning on starting a new contract between now and April 2021, make sure you speak to your Aardvark accountant. They’ll be able to review your contract and working practices, and support you with everything relating to IR35.
What will the expected impact on contractors be?
From the changes within the Public sector, we envisage some end-hirers will take a risk averse stance, and place blanket ‘inside IR35’ statuses on all contractors. This removes themselves from any liability for an incorrectly determined status.
This may result in a number of contractors working on a PAYE basis temporarily, and in the process losing all associated tax benefits of working through their Limited Company.
How will your status be assessed?
Your end-hirer / client must demonstrate that they’ve taken ‘reasonable care, when determining your status. To do this they must use the following:
Control: Refers to the level of control the end-hirer / client has over your contract and working practices. If there is little to no control, then your contract and working practices are considered ‘outside’.
Substitution: Are you able to send a replacement during the duration of your contract? If the answer is ‘yes’ then this would strongly suggest you’re working outside of IR35.
Mutuality of Obligation: Is there an obligation or expectation to complete extra work that’s outside of the scope of the original contract? If the answer is ‘no’ then this also strongly suggests that you’re outside IR35.
Some clients / end-hirers are using HMRC’s CEST tool (Check Employment Status for Tax) to determine a client’s status, whereby they answer a number of questions based on a contractor’s contract and working practices, and the tool provides the status decision.
What’s wrong with CEST?
Created by HMRC, it’s been argued that CEST is biased in favour of HMRC. It’s also widely considered to be flawed, with HMRC’s own investigations showing that its final decision is incorrect. Whilst this is the case, HMRC will stand by the tool’s final decision, so long as all the answers given are 100% factually correct.
What should you do if you don’t agree with your end-hirer / client’s decision?
If you have reason to believe that your client has made a blanket decision on your status, or arrived at an incorrect status, you’re able to submit a ‘client-led disagreement’. This effectively provides evidence to the client of your decision to question your status, who’ll then have 45 days to respond to the appeal.
Your Aardvark accountant will be able to support you through every step of this process, so be sure to alert them to your decision to appeal as early as possible.
What can be done if your client refuses to reconsider an incorrect assessment?
You have four options:
Option one: you can leave and contract elsewhere.
Option two: You can accept a permanent role. Ensure you negotiate a higher rate, to compensate for your losses.
Option three: Temporarily contract through an Umbrella company whilst your case is being disputed. As an Aardvark client you have complete freedom to move between your Limited Company and our Umbrella services at no extra cost. Simply let your accountant know and they’ll get the ball rolling.
Option four: Continue to contract through your Limited Company. You’ll still pay taxes and National Insurance Contributions, but there are some other financial benefits. Your Aardvark accountant will be able to advise these, based on your own personal and professional circumstances.
What happens if you were contracting outside IR35, then are found to be inside for the same contract?
You must exercise caution when contracting for the same client, when a previous contract was considered outside, but now is classed as inside. HMRC have stated that they have no intentions to open retrospective enquiries into prior contracts, but recent behaviour may suggest otherwise. It’s advised to speak to your Aardvark personal accountant of your plans, and to challenge HMRC’s decision with their support.
Note: All the information and advice in this blog post was correct at the time of writing.