Revealed: the key off-payroll scenarios facing contractors in this new (IR35) world
Now is the time to stop and consider all the different off-payroll-related scenarios you may face as a contractor in 2021, and plan what actions you will take, including making sure you have access to the support you want.
You should start with your accountant and read HMRC’s extensive and often-changing guidance on private sector IR35 reform, which is effective from April 6th 2021, writes Kate Cottrell of status specialists Bauer & Cottrell.
Key IR35 situations off-payroll workers face:
1. Carry on as normal, making your own IR35 decisions
This is a good position to be in, but you will still need to take “reasonable care” when deciding your status. And you need to make sure that you fully understand how the reformed IR35 legislation in the shape of the new off-payroll rules work.
It will be vital for you to personally collect the right information and carry out your own appropriate ‘due diligence.’ For example, you should not just accept that your client is a ‘small company’ and exempt from the rules – get it in writing.
2. Moving between umbrella and your PSC
This is an option being offered by many accountants and you may be forced to use an umbrella company by your end-client or recruitment agency.
There’s lots of questions to ask yourself and others here, ranging from ‘what will you do with your PSC?’ to negotiating lower accountancy fees and, if you have a choice, which umbrella company you will use and how to differentiate their offerings. Note – many contractors will not have such a choice, as the umbrella is often dictated by the client or agency.
3. Disagreeing with an end-client or agency status opinion
The client decides you are inside IR35, setting it out on your Status Determination Statement. There are so many issues for contractors to consider in response to this, ranging from what are the risks of this ‘caught’ decision if you had the same role but previously declared an outside IR35 position, through to understanding the law and the client-led processes required to dispute the decision. In addition, you may appeal to the client but then need to consider what you will do if the appeal fails. Will you just move on or accept the decision, and what are the risks of each course of action?
4. Understanding exemptions
In the new off-payroll world, exemptions are not just about understanding the small company exemption or overseas issues. It is essential that you grasp the basics of all things IR35/off-payroll and the different rules for the public and private sectors.
For example, beware of consultancies, as they may not be a genuine outsourced service falling (currently) into the ‘small company’ exemption. You need to know what evidence you should seek to prove your case. This can get very complicated for contractors on their own.
5. Changing status
You may be faced with changing your status owing to business decisions being made by end clients or changing contractual terms e.g. blanket determinations, or bans like the ‘no more PSCs’ rule. As a contractor hit by these decisions, you need to know what you are likely to do, or can do, in this situation. And preferably, you need to know which action you’ll take before taking it.
6. HMRC investigations
You may face an IR35 investigation into your IR35 status or be affected by an HMRC investigation into the end client or the agency.
This needs some careful handling to protect any previous outside IR35 position. Do not just sit back on the basis that it will be the liability of the end-client if they have got it wrong and not your problem – take advice.
7. Beware old and new ‘solutions’
Statement of Work contracts are not a silver bullet. It is at best tricky to change a ‘time and materials’ contract into one with milestones and deliverables, paid on completion.
In addition, there are all sorts of new solutions out there and these often fail at the first hurdle, often because the promoter has failed to consider all the other rules that can affect contractors, such as the Managed Service Company legislation. Any solution offering a high take-home rate is likely to have got it wrong!
8. IR35/Off- Payroll tools
Automated or online tools, including CEST may be helpful for some, but they often (in the case of CEST especially), do not pick up the full facts, as would be the case when dealing with an IR35 specialist.
Always remember -- HMRC will only stand by the result if they agree that what you input was correct. Lots of folk obtain an outside IR35 CEST result by stating on the test that they supply equipment/materials/vehicles. But the outcome stemming from this answer is usually wrong, as these items are used, as a matter of choice (a laptop, for example) rather than being an ‘essential’ requirement.
If you don't read any of the above, then please just definitely read this instead!
The main message I’m currently trying to get across day in, day out, for all parties including contractors, is this -- knowledge is power!
If you are not able to examine and understand all the new IR35 rules yourself, individually, then seek help but do not blindly accept what you are being told or fall for what others tell you. With IR35, almost every case is different and each and every assignment or supply of services will depend on its own particular facts and working practices.
In the status space alone, there’s lots of things to consider for contractors in 2021, on top of the ongoing and UK-wide coronavirus pandemic, a Budget in exactly one month’s time and family and friends to care for and keep safe.