The hard truth about IR35 reform's repeal and advice for contractors
The dust hasn’t even yet settled on chancellor Kwasi Kwarteng’s announcement that IR35 reform of 2017 and 2021 is to be repealed, but the scaremongering has already begun.
There’s also the speculators, the cynics, and the so-called ‘experts’ – those with vested interests, and those bitter from being left out of the conversation. And they are on top of the odd article unhelpfully and boldly claiming to contain no less than “everything” IT contractors need to know about the reform’s repeal. If only it was that simple, writes former HM Treasury secondee and ex-tax inspector Kate Cottrell, the co-founder of IR35 specialists Bauer & Cottrell.
As of October 2022; what are we seeing?
The initial euphoria, expressed by many following the chancellor’s announcement that the Off-Payroll Working (OPW) rules are to be repealed from April 6th 2023 has died down. There are three main reasons for this:
- Is it really going to happen? Nothing has changed yet and we have a Budget coming up in November, preceded by a government already doing a U-turn on its 45p tax rate plan. The possibility of further U-turns therefore seems significant. Fingers crossed that this promised repeal of the OPW rules goes ahead. But it’s not certain.
- End-clients (both public and private sectors), agencies, umbrella companies, accountants and IR35/OPW advisers are all taking stock and wondering how this could affect their business. And yes, that goes for me too!
- Contractors are realising that unless they have always been outside IR35 and working for ‘small’ companies (not affected by the OPW rules), that their own circumstances are complicated. Notably where the contractor is:
- currently with an umbrella, or
- holding an SDS where the client has stated ‘inside IR35’, or;
- regularly jumping between their PSC and an umbrella company depending on the IR35/OPW assessment.
At this stage (Q4 2022), nobody knows how the repeal of the OPW rules will work. That’s the unpopular, hard truth. So -- many commentators are reaching for their crystal balls, with some suggesting that there will be new rules for contractors added onto the IR35 rules of old (2000), such as requiring contractors to complete Status Determination Statements. There’s even the odd whisper that end-clients will continue to determine IR35 status; that blanket bans on using PSCs will continue indefinitely, and that HMRC will declare some sort of ‘amnesty’ on prior SDSs with ‘inside’ results. As interesting as they are, these really are only opinions at this stage and should be taken as nothing more.
It is impossible to make concrete plans, yet
Until we see the detail of the IR35 reform repeal in black and white via the Finance Act, it is only possible to try to plan, and consider risks based upon scenarios that may be realistic. That’s where we can have some sympathy for the genuine, qualified, advisers in this space trying to look into the future.
Fortunately, HMRC has promised further guidance for contractors unfamiliar with the IR35 regime. But it is likely (in my view!) that this guidance will be in the form of a referral to the guidance already in place. My expectation is for a straightforward repeal of the OPW rules, with no add-ons, changes, and nothing new that has not already been in place since April 2000.
What can you do in the next six months?
Every part of the contracting chain needs to use this time to analyse the effects on their own businesses and it is vital that all get up to speed with IR35 version one (2000).
We have seen many “IR35 experts” born since the advent of the OPW rules, and I’d caution contractors to be very careful as a result. These so-called ‘experts’ are, perversely, actually very well-positioned if it pans out that the only thing that changes post-April 6th 2023 is who makes the IR35 decision, and who is liable for getting that decision wrong. For our part, our advisory will continue to work with the same case law precedent, and keep a keen eye on the cases going through the tribunals and courts.
What is the best advice for contractors over the next six months?
- Keep watching the contractor press for developments (the contractor ‘press’ that doesn’t just stick a press release up!).
- Decide what you want to do -- if you could.
- Collect and keep all evidence including SDS outcomes, online IR35 status tool outputs, end-client correspondence, contract review results, and working practices changes/opinions.
- Find out about your personal situation now, to see what the options and (above all else) the risks are, and if a change in your status is feasible.
- Speak to your client and find out what their position may be come April 6th 2023, especially if you are contracting with an organisation that has banned PSCs.
- Take advice from only those that, as impartially as possible, understand all the rules (from 2000 onwards), and ideally those with hands-on experience of successfully defending IR35 HMRC investigations.
In short, make good use of the next six months so you are ready for April 6th 2023!