The eight top tricks of contractors who refuse to be victims of IR35 reform
With some urgency, each and every limited company contractor needs to take responsibility for their own IR35 status determination or risk being left behind -- or worse, writes James Poyser, chief executive at inniAccounts and founder of offpayroll.org.
Let me outline the case why this is paramount while revealing to you the actual tricks that successful contractors are using right now, ahead of private sector IR35 reform biting in exactly five weeks’ time.
Out with the passive, in with the proactive
So 36 days from now, end clients become responsible for IR35 determinations. However, that’s not a reason for contractors to be passive. Far from it. It’s vital independent professionals stay ahead of the pack by being proactive, informed and taking responsibility for their long-term IR35 status.
Why? It’s clear that for some people who work on a contract basis, April 6th 2021 is a turning point and a chance to have a rethink and consider the business they want to run in the future. For instance, if the long-term vision is to move away from more straightforward contracting roles to become a boutique consultancy, then you need to start planning now.
And while clients drive determinations, it’s evident that consultants and contractors are under much more scrutiny because of the shift in responsibility, so these contract professionals are more responsible than ever for getting the right outcome for their situation.
Paddle your own canoe
Hence, it’s possible that while the majority of the market might want to find outside roles, it might not be as important to you. That’s ok. Understanding the pros and cons of ‘inside IR35’ versus ‘outside IR35’ are all part of determining your own path and career, and managing the flexibility contracting affords.
In order to map out your future, it’s really important to consider the end-user perspective on the reforms and why some companies have taken the decisions they have. The bottom line is that hiring someone working outside IR35 presents a compliance and tax risk, so taking a default position of PAYE manages that exposure.
But it’s double-edged, as many companies are finding out -- they are struggling to find the highly skilled people they need to deliver short-term strategic projects. For every contract being offered inside IR35, there are many more being offered outside. This is good news, providing choice to contractors who manage their responsibilities, and, above all, it shows there are businesses out there managing the risks well.
Arguments, ways and mindsets you should forget
It’s also evidence that you can no longer use the ‘I should be outside because I always have been’ argument. Instead, informed and proactive consultants who understand IR35 can and do have serious and productive discussions with clients.
In effect, these consultants know they can influence changes in working practices, and thus determinations, and achieve the outcome they want, to the extent that many are seen as a more desirable resource, able to transfer skills across sectors, and attracting higher pay rates as a result.
The contractors navigating the off-payroll reforms most effectively are creating market advantage. They are not leaving things to chance and are instead adopting a proactive mindset that helps them create options for themselves in the short, and long term. They have made a conscious decision to step away from the belief that contractors are ‘victims’ and turned the situation on its head, making an early grab on the best work out there.
So, what are the tricks you need in the ‘thrive don’t just survive’ kit bag? There’s eight that we’re seeing again and again.
There is a lot of hearsay around IR35 and that’s unhelpful. Successful ‘outside’ contractors have taken the time to understand the ins and outs of the reform by reading expert guides (by bonafide, genuine and qualified advisers), and so are in a better position to have a meaningful conversation about an IR35 status with an end-client.
2. Assess the current situation
It’s more important than ever to take the time to look at the client’s perspective of your engagement. But crucially, invest in this look with the risk-averse lens your clients will use! Ask yourself: what are your strengths, what are the working practices you must have in place and where are the potential risks? Armed with the answers to these three, you really can begin to identify the steps you must take to minimise the risks for your client.
3. Use tools to help (yes even CEST)
There are a number of tools available to help you review things and understand the risk profile. Look for those that give you a view of an employment lawyer and that of CEST, so you can highlight differences in the determinations. With CEST in particular, it’s true that it contains some failings, but remember -- it will still be used by HMRC to build a case so knowing what that might look like can help you adjust.
4. Act early, helpfully, and influence
Step away from any ‘blame game’ and instead approach hiring managers with positivity and discuss your findings. Getting ready for the reforms is a huge undertaking for clients and they could well appreciate your help and support. And of course, if you help them see the realities of the working practices and terms of engagement, it will be reflected in the determination.
5. Challenge and discuss with confidence
A discussion is always going to be better if it’s grounded in facts and evidence, so make sure you can articulate the finer points, and even go as far as to create a professional document that summarises it all for clients. You’ll then stand out from those contractors who don’t.
6. Stay compliant
Many end-clients are engaging in six-monthly reviews of working practices. So, if you are outside IR35, expect spot checks and HMRC auditing. As part of this, keep an eye on your working practices and review them every few months to ensure you continue to use outside IR35 practices.
7. Increase your power
If you’ve been found inside IR35, think about what you can do to increase your power for your next engagement.
First, build up a ‘war chest’ that gives you a financial buffer while you look for the right contract.
Second, look at what you need to succeed in the market -- this could be looking at how you transfer skills across sectors, developing sought-after niche skills, or approaching a different sector – like the SME market which is desperate to find reliable high quality talent to keep them growing.
Third, review and review again to strengthen your in-business credentials. When you step back from re-positioning yourself (as outlined above), you might find there is an opportunity to think about turning your commercial level up a notch by becoming the owner of a boutique consultancy.
8. Final check - the sum of your parts?
Together these things you’re doing – the seven above or your own seven if you wish to dream up variants -- must add up to having influence over the IR35 status determination process. Let the tide of IR35 reform just wash over you, and you’ll likely find yourself all at sea.
When you review, if you find your options are limited, then you need to either be accepting and work with what you’ve got and can achieve (primarily for your own wellbeing and sanity), or agree on balance that it’s possible you’ve come to the end of your road as a contractor.
Until then, never say never. In other words, it’s worth remembering that this is an ongoing process. For all engagements now and in the future, you want to be in a position where you can influence your end-client, get the determination that is right for you, and run the business you want