The Off-Payroll legislation became primary legislation on 22nd July 2020 and will be active from April 2021 – there is no further opportunity for delay or postponement.
To avoid cliff-edge disruption towards the end of March 2021, firms will be seeking to get their compliance processes in place, with larger firms starting around September 2020.
There is a limited amount of expertise available to firms in the market, which means that firms who act late are more likely to take a risk averse approach and attempt to convert all contractors to payroll together with a large drop in contract rates to cover the increased taxes they will now face.
Contractors now need to take the upper hand, and educate their clients to give themselves every chance, come April 2021, of sitting on a seat labelled “outside IR35”. Estimates are that up to half of the seats will be labelled “inside IR35”. Therefore, to maintain your future as a professional contractor, your personal intervention will be required.
Here we list 12 key points on your road to understanding IR35:
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IR35 and the Off-Payroll legislation target the engagements of limited company contractors who would be employees of their end-clients if they did not work through an intermediary such as their limited company.
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As a limited company contractor, you pay slightly less tax than employees, although you also forgo the employment rights and security that employees enjoy.
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HMRC is mainly targeting perceived loss of employer’s NICs, which firms do not pay if they hire contractors on a self-employed basis.
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Employment status is not a choice, but a matter of law, and is defined by both the contractual agreement and the ongoing working practices.
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If deemed ‘inside IR35’, you could suffer a reduction in net pay of up to 20%, either due to more taxes payable under the original IR35, or a reduced contract rate offered due to the Off-Payroll legislation.
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It is important to work with the hirer and conduct your due diligence to try and secure an outside IR35 contract.
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HMRC’s guidance does not always align with the law. Use independent specialists.
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‘Control’, ‘personal service’ and ‘mutuality of obligation’ are the three key employment status factors which underpin all UK employment status cases.
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Your hiring firm and agency share compliance responsibilities and tax liability risk under the Off-Payroll legislation. If you are deemed ‘inside IR35’ it is up to the agency in most cases to deduct and process your tax.
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It is vital that you ensure your working practices match what is written in the contract, and vice-versa.
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Creating defence files helps to prove an ‘outside IR35’ status and shut down any future investigation.
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During contract search and rate negotiations, it is sensible to quote different rates for “outside IR35” and “inside IR35”.
Do not forget, if you wish to maintain your professional career as a contractor then you will need to take charge.
This guide contains a selection of key themes from the book IR35 & Off-Payroll Explained, which is available on Amazon in Kindle or Paperback.