As it stands, April 2020 will see landmark changes to IR35, as the 2017 public sector legislation is rolled out to the private sector. This has sent shock-waves across numerous industries – with some firms such as HSBC announcing that they would avoid hiring Limited Company contractors altogether. While this may be a knee-jerk reaction – the legislation will definitely alter the contracting space as we know it. So, what should IT contractors know, and how can they protect themselves?
IT contractors: IR35 explained
The Intermediaries Legislation has been around since 2000, with its aim to remove the tax advantages of providing services via a limited company by individuals who are not truly in business on their own account – or ‘disguised employees’- whose roles are more akin to traditional employees.
Historically under IR35, the contractor’s limited company was responsible for determining employment status. However, due to perceived non-compliance, the Government rolled out changes to the public sector in 2017 which made the end-client responsible for determining the employment status of contractors.
Under the changes, if the end-client deems a contractor to be ‘inside IR35’, the fee-payer in the contractual chain (often a recruitment agency, or client) is responsible for deducting income tax and National Insurance Contributions from the contractor.
From April 2020 – this will extend to the private sector. Given the chaos that arrived after public sector changes were enforced, contractors are understandably concerned about the prospect of further reform. However, there is plenty IT contractors can do to prepare for the IR35.
While the changes to off-payroll working may be daunting, it’s important that IT contractors engage relevant parties in the run-up to April to ensure their client and recruitment agency is taking the necessary steps to make well-informed status decisions. It’s also worth speaking with other contractors who work for the same client.
Request a Confirmation of Arrangements (COA)
For contractors seeking to continue an existing arrangement, a COA is a letter or document outlining that each party in the contractual chain agrees on the IR35 status of a contractor. It should outline the specific reasons that a working arrangement belongs outside IR35 – like having the right to provide a substitute, proving that Mutuality of Obligation and control don’t exist.
Should a contractor suspect that a client will make inaccurate IR35 decisions, they should seek a second opinion. By having your contract reviewed by an independent expert, you will be in a strong position to challenge and potentially overturn a wrong assessment. Compared to CEST (HMRC’s online employment status tool), this is a more reliable way of determining status.
Armed with an in-depth status review carried out by a professional with no financial gain on the outcome of the assessment, contractors will be better placed to head off any risk-averse decisions made by your client.
Finally, it’s important that IT contractors are clear that they have a strong case for working outside IR35. Independent workers should gather ‘evidence’ in the run-up to April which demonstrates the service they provide is genuinely self-employed.
In addition to collecting information that proves they have a right to provide a substitute, do not work under the direct control of the client and are not mutuality obliged to carry out the work, it’s also worth thinking about any other ‘evidence’ that strengthens the argument. This could be:
•documents showing that contractors are taking a financial risk,
•evidence that contractors are not ‘part and parcel’ of the client’s company
•the details of a contractors’ personal company website and stationery/equipment
Despite obvious concerns, IR35 reform is manageable
Whilst IT contractors are bound to have concerns about the April 2020 changes to IR35, dealing with issues head-on is the way to go. While contractors will no longer set their own status, all is not lost. The contracting industry has survived an onslaught of legislation over the past two decades – and continues to thrive. By being proactive, and exploring the options above – IT contractors can get ahead when it comes to protecting IR35 status.