Contractors offered ‘outside IR35’ contracts that morph to ‘inside’ from April

Limited company contractors working outside IR35 are widely having their renewal or end date brought forward to a decision-day of March 31st, ahead of the new off-payroll rules biting on April 6th.

Other PSCs -- whose clients have actually decided their stance on the new rules and so will only offer ‘inside IR35’ roles, say they are already being paid as if they are caught by the incoming legislation.

Similarly, some recruitment agencies are touting ‘outside IR35’ contracts that run between now and April 5th, only for those contracts to turn ‘inside IR35’ on April 6th.

'It's all-change'

“We are seeing this all the time,” says IR35 advisory Bauer & Cottrell (B&C), referring to contracts set to change in status overnight from not caught by IR35 to caught by IR35.

Umbrella company CWC Solutions says: “Blanket decisions are being made by hirers against people…who were engaged on an outside basis.

“But now, those people are finding it’s 'all-change' and their status is going to be ‘inside’ due to the April reform, often because that’s simply the client’s universal policy.”

'Every contractor we spoke to on a March 31st renew-or-end cliff-edge'

The umbrella’s boss Carolyn Walsh says there are two questions that the affected are posing.

“’Why did the contract work so well to keep me contracting before this as ‘outside’ IR35?’ and, ‘how can the contract be so easily overturned with a few new clauses [to reflect inside IR35], without it not constituting a breach of contract?’”

But it’s not just advisories and umbrellas reporting a contractual overhaul. Natalie Bowers, boss of Bowers Partnership, a niche staffing agency said:

“Every contractor we’ve spoken to who is currently ‘outside’ now has an end or renewal date of March 31st. And it doesn’t take a genius to work out what’s going to happen next!

“In actual fact, this is one big [upcoming and unfair payment] cock-up, as aside from this cliff-edge, IR35 is concerned with when the contractors invoices are paid, not the period over which the services were provided.”

'More and more inside IR35 determinations'

The agency’s comments raise the prospect that some contractors face being paid on an inside-IR35 basis, even though they were engaged on an outside-IR35 basis -- according to their contract, and possibly any Confirmation of Arrangements which they have in place.

“We’re seeing more and more determinations coming through with an inside IR35 verdict,” says Clarity Umbrella.

In a post on Tuesday addressing contractors, the firm’s Lucy Smith added: “Companies are changing their minds from the determinations made last year.

“If you need to start thinking about moving to umbrella ready for the April 6th deadline, then make sure you take a bit of time to know exactly what to expect before you agree to any role or changes.”

'Now impossible to set up an IT services company'

Taking to Twitter, one contractor confirmed: “I've been forced to stop operating as a limited company and go under an umbrella -- [just] to keep contracting.

“All the effort I've expended in getting my company set up and maintained is wasted. It's basically impossible to set up an IT services business nowadays.”

Asked how a contractor could be outside IR35 on a Friday but inside IR35 by the Monday, an IR35 expert answered by saying proper reviews factor-in both the current and the future.

'Wonderful outside result -- which lasts only a few weeks'

“A comprehensive IR35 review has for some time involved looking at the current position and also the future position where the contract extends beyond April or is likely to,” says B&C’s Kate Cottrell.

“[Contractors and clients will want a review that]….address all of these potential issues. But I don’t think any of the [online status-testing] ‘tools’ do.

“This is of course where dealing with real people comes to the fore. There is no point in having a wonderful outside IR35 result in your hands, if it is all likely to change again in a few weeks.”

Another status adviser, who declined to be named, also took issue with automated IR35 tools, saying HMRC’s CEST would have determined BBC presenter Kaye Adams as inside IR35, even though a tax tribunal has just determined her to be outside IR35.

'Adams judgment will give security'

Yet the Adams case is potentially some reassurance for contractors suddenly on the receiving end of ‘inside IR35’ determinations triggered by the April 6th rules, believes CWC boss Carolyn Walsh.

“The major part which in-business factors played in determining Adams as outside IR35 will give a certain amount of security to many contractors who have been genuinely freelancing for years, only to now be forced into false employment in the run-up to IR35 reform,” she says.

“Wondering what that [status change] would mean if an IR35 investigation arose into previous years might now not be quite so full of worry.”

'The dam'

However last night, a LinkedIn post by one IT contractor indicates that it’s far from all inside-IR35 determinations, despite the risk-averse contractual overhauls being made widely and rapidly in the last few days.

“Just spoken to a recruiter who is representing a major, UK ‘top 20’ financial organisation launching a large new project and they will be doing proper individual determinations for contractors’ IR35 status," the post begins.

“With a presumption, since it's for a specific project/pieces of work, that some/most roles will be outside. Hopefully, that's the dam breaking. I've seen mention of some of the smaller players also doing things properly, [but this is the] first time I've heard of one of the big players doing it.”

Moments later in an “update,” the contractor added: “A contact has just told me of a second ‘top 20’ financial player doing proper [IR35] determinations [too]. Dam broken -- water is trickling through.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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