As a contractor, your IR35 status status will be brought into question in the near future. IR35 is the name given to the tax law that is there basically to stop people leaving a job and then returning to the same job as a contractor usually as a limited company.
The proposals mean you will not be able to decide if IR35 applies to you with the decision being made by your client. This means that, if they decide you are ‘in IR35’, your income tax and National Insurance will be paid through RTI directly from your wage.
So, you will still be a contractor; being paid like an employee; without the matching employees’ benefits and rights. (Pension contributions, sick pay etc.)
When does this start?
It was announced during the 2016 Autumn Statement and will be applicable from 6th April 2017. The full legislation with all the necessary details is not yet available to view.
Who exactly decides my IR35 status?
According to the draft legislation, “the entity that pays the contractor” is responsible for deciding the IR35 status. In most cases, this would be the employment agency. They can ask the client for a recommendation of your IR35 status, depending on the specific work you will be doing. They are legally obliged to give a response within one month of the question being asked. There has been no firm decision on whether the agency or client is liable for the accuracy of this decision. Hopefully the completed legislation will have more answers.
This is a cause for concern, given the complex nature of the legislation and that your clients are unlikely to be experts in the field. It is a new, legally binding determination being made by untrained non-specialists. HMRC have brought out an IR35 online tool to help decide your IR35 status.
Will I be able to tell if a proposed new contract puts me ‘in IR35’?
Unsurprisingly – it’s complicated. So the short answer is “no”, you may not be able to easily calculate if a particular project will put you in this category. As there is the possibility that they may soon become liable for making the wrong decision, it is fair to assume that most clients and agencies will err on the side of caution and rule for IR35 if they are unsure. The way it’s looked so far, it’s difficult to see how they could be certain at all, given the layers of complexity involved in making the decision.
What about backdated claims from HMRC?
Unfortunately, this has not been ruled out during the consultation process. Public sector contractors could face backdated tax and NICs payments.
Is there anything I can do to protect myself?
If you are going to carry on in the public sector then they are lucky and you need to get a new, carefully worded contract in place from 6th April. Not an ‘add-on’ or extension of the contract you have now – seek professional advice on this.
Get in any 30-day invoices to your public sector clients before 6th March.
Word of warning
All public sector staff are working at full stretch and, apart from anything else, don’t need the extra admin. The liability aspect gives any mistakes hefty financial consequences for the client – money they cannot afford to lose. So they are more likely to just put every contractor in IR35, just to be on the safe side. Or, they may decide to avoid the entire headache and try to put all their workers into the RTI system, regardless of whether this is the best solution for everybody.
What next?
There are already many reports coming to the fore of the public sector suffering a huge lack of expert knowledge because many contractors have already left for private sector work. The uncertainty of not knowing the precise detail of the rules is not helping people to plan their work. If you have a public sector contract that ends in March, do you want to renew it? Do you have all the facts to make that decision? Not yet. The government is launching an online tool to help all parties figure out if a contract will be in, or out, of IR35. We’ll have to wait for a few months to see the fallout of this tax change.
