The government looks set to go ahead with the changes to IR35 for the private sector from April 2021, and from this date onwards, the responsibility for determining the IR35 status of any contractor role will pass to the end-client. This means that contractors will no longer have control over the process by which their assignment is deemed inside or outside IR35. However, there are things contractors can do to prepare.
If you plan to take on any temporary assignments with an end-client (whether via an agency or not), and will be issuing any invoices after the 6th April 2021 (even if the work was carried out prior to this date), we recommend carrying out the following checks to ensure that the rules are correctly applied to your role.
- Know the rules, particularly the employment tests which determine whether an assignment is inside or outside IR35. You can find detailed advice in our comprehensive guide, IR35 Explained.
- Be clear on who your end-client is – this may be different to the entity that pays your fees (this could be a recruitment agency).
- Is the end-client a medium or large sized company? If yes, then they fall within the rules. If the end-client is small, then they may be exempt from the rules. The client is obliged to provide evidence of their size within 45 days of you asking.
- Use the HMRC Check Employment Status for Tax (CEST) tool to give an indication of your likely status.
- Have a discussion with your end-client about your role – it might help to give them a copy of the above results and/or write down the reasons why your role is not inside IR35 (if you believe it is not). Be aware that some end-clients may not be fully aware of the rules and may need help understanding them.
- If the client is a medium/large company, request a status determination statement (SDS) from them.
- If your end client is based overseas, and has no presence in the UK, the client will be exempt from applying the new rules. Instead, the responsibility for making the correct determination remains with you.
If the role is determined to fall inside IR35, what are your options?
- The client must have taken reasonable care in making their assessment and must provide reasons for the determination. Blanket assessments are not acceptable – theoretically you could sue them if they do not make the decision on an individual basis. If you believe that the status determination is incorrect, you can appeal against the result, providing your own evidence in the form of a contract and working practices check from a specialist. Be aware there is a cost attached to this, and it could jeopardise your relationship with the end-client. However, if you do choose to go down this route, we recommend Bauer & Cottrell or CronerTaxwise.
- For all roles determined to be within IR35, you are required to be on a payroll somewhere and taxed as a regular employee (i.e. not through your own PSC). Your end-client may require you to go on their own payroll, or if the fee payer is an agency, you may be asked to use a payroll umbrella company. This solution allows you to retain a certain degree of independence while remaining fully compliant with the rules. We recommend using our payroll umbrella company, Competex Pro. Competex Pro is the only payroll umbrella company in the UK that specialises in working with interim managers and consultants. Find out more about Competex Pro here.
- You may be able to renegotiate your day rate to share the additional tax burden. There are no hard and fast rules as to the level of increase that might be appropriate, and there are many variables that need to be considered. However, if you need help with a basic pay calculation, we can assist you with that.
- If you have recently left your former employment, you may need additional help with your tax affairs. Competex’s tax team can help with this, so do contact us if you need advice.