With private sector IR35 reform looming, we asked a leading IR35 advisory firm what practical steps professional contractors can take now to prepare in advance for the changes.
From 6th April 2021, the ‘off-payroll’ rules will be extended to the private sector, which will change the way employment status is set for the vast majority of contractors (excluding those engaged by a ‘small business’ client).
Engagers will take over this responsibility – rather than contractors determining their own status.
Clearly, there is a great deal of uncertainty regarding the way in which clients manage the new legislation.
Here, Qdos have provided some useful advice to help contractors deal with the new rules.
While some businesses have already been in touch with contractors regarding the reform, with many others to follow suit in the coming months, if contractors haven’t heard from their engager and or agency about IR35 reform, we advise them to reach out.
This is to ensure the client, and recruitment agency (when involved), is taking the necessary steps to make well-informed status decisions.
As a contractor, it’s also worth speaking with other contractors who work for the same client before approaching your engager together. This way, they are more likely to listen, should your initial conversation fall on deaf ears.
Engagers need to understand that by collaborating with contractors, they have a much better chance of setting IR35 status accurately and remaining compliant. There are some specific tips for clients here.
Request a Confirmation of Arrangements (CoA)
This is a letter or document outlining that each party in the contractual chain agrees on the IR35 status of a contractor. It can be key when shutting down an IR35 enquiry because it will reflect the true nature of the working relationship you have with your client.
It should outline the specific reasons that your working arrangement belongs outside IR35 – like having the right to provide a substitute, proving that Mutuality of Obligation and control don’t exist – and could be used to safeguard your status when the rules change next year should you remain on the same contract.
You can download a free Confirmation of Arrangements template here.
IR35 contract review
Should a contractor suspect their engager will make risk-averse or inaccurate IR35 decisions, we urge these workers to seek a second opinion. By having your contract reviewed by an independent and unbiased expert, you will be in a strong position to challenge and potentially overturn a wrong assessment.
Failing this, contractors should bear in mind that they will maintain liability for their IR35 status prior to 6th April 2021 and therefore should ensure they have the relevant evidence to support their status.a
Compared to CEST (HMRC’s online employment status tool), an IR35 status review is a more thorough and reliable way of determining status, and companies are well within their rights to engage the help of a specialist when administering IR35. You can learn more about having your contract reviewed here.
It’s important that contractors have a strong case for working outside IR35. This matters even more now, given they will soon not be setting their own status. Therefore, we advise independent workers to gather ‘evidence’ in the run-up to next April, which demonstrates the service they provide is a genuinely self-employed one.
In addition to collecting information that proves you 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 your argument.
This could be, for example; documents showing you take a financial risk, are not ‘part and parcel’ of the client’s company, and even having your own company website and stationery.
Despite obvious concerns, “IR35 reform is manageable”
Qdos CEO, Seb Maley, told us that whilst contractors are bound to have significant concerns about the April 2020 changes, dealing with things they have control over head-on is definitely the way to go:
“After the introduction of public sector changes in 2017 resulted in many engagers making risk-averse and ultimately incorrect IR35 decisions, contractors are well within their rights to be concerned about the rapidly approaching private sector reform. However, the changes are manageable and the private sector does have the opportunity to learn from mistakes made in the public sector. Judging by the thousands of businesses Qdos is supporting, I am confident that things will be different this time round.
“While contractors will not set their own IR35 status from April 2021 onwards, all is not lost. Through proactivity and by exploring these options, there are ways to protect IR35 status and also help engagers understand the importance of making well-informed decisions.”
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- The accompanying article to this one… explains what clients/engagers should do to mitigate against the new rules.
- Use this calculator to work out the potential cost if your contract work is caught by IR35.