With the IR35 changes fast approaching we want to update contractors (and those considering a career in contracting), on what these IR35 legislation changes mean and how to prepare.
Throughout this blog, we will provide an overview of the IR35 legislation and what changes to IR35 will be post April 2021.
What is IR35 legislation?
Firstly, we think it is important to explain what IR35 is and the current effect it has on contractors.
IR35 in the Public sector – If a contractor is working in the public sector, it is the end-hirer who decides on IR35 status. Once this process has been completed it is the end-hirers job to let the ‘fee payer’ (usually the supplying agency) know if the contract should be paid net or gross of tax.
As instructed by HMRC, all IR35 reviews should be conducted on a case-by-case basis. This means that whilst your contract is within the Public Sector, it does not mean that you will automatically be found to be working inside IR35.
IR35 in the Private sector – If a contractor is working within the private sector, they are currently responsible for determining their own IR35 status, along with the tax risk if not done correctly.
HMRC continue to carry out IR35 investigations, so it is important that you fully understand the IR35 rules and have an expert IR35 accountant on hand to provide unlimited IR35 reviews and services. If you do get investigated by HMRC and they consider your contract to be inside IR35 then you will be ‘deemed employed’, resulting in you paying more tax. There is also a possibility that HMRC could apply tax retrospectively.
Changes to IR35 rules come April 2021 – As of April 2021, all contracts, no matter if they are public or private sector, will have their IR35 statuses determined by the end-hirer (i.e. your client). Meaning, even if your contract is within the private sector, it is no longer your responsibility to determine the IR35 status.
With the determination of your IR35 status now sitting with the end-hirer, the associated tax risk of misidentifying your status will also be their responsibility. This removes the tax burden from you, meaning if they get it wrong you won’t be at fault.
It is important to remember that the rules used to determine IR35 are not changing, so if you are genuinely outside of IR35 now, you should continue to be so post-April 2021.
As expected, the changes in IR35 responsibility has led to some end-hirers becoming nervous about April 2021 and there have been concerns that businesses may move towards deeming all contracts to be within IR35 to protect themselves from any associated tax risks. However, the end-hirers who manage the IR35 changes properly will benefit by attracting the best talent, and the feeling is that other end-hirers will fall into line after a short period of turbulence.
How can you ensure your end-hirer has made the right decision on your contract post-April 2021?
Whilst the decision of determining your IR35 status is no longer with you, there are a few steps you can take to make your life and your end-hirers much easier. One is enrolling with a specialist contractor accountant who is an expert in IR35 guidance and can support you on future contracts.
As an Intouch customer we offer the following unique IR35 services at no extra cost:
- Unlimited working practice and IR35 reviews – which you can share with your end-hirer. Whilst their decision is final, we will provide you with an easy-to-use report on your contract’s status and working practices to assist them in their decision. We are on hand to offer legal support to end-hirers who need further IR35 guidance, like when it comes to demonstrating ‘reasonable care’, something that HMRC expect from all end-hirers, for each contractor.
- Switch between Umbrella or Limited Company – allowing you to work contracts inside and outside IR35 legislation without any tax implications. If you think this will be beneficial to you, then Intouch’s Flex solution is the answer. This working option allows us to switch you over to our umbrella solution (via our sister company, Brookson One) for the duration of your contract, whilst keeping your limited company ticking over and up to date, then when it’s time to switch back, your Limited Company is ready and waiting for you. All the while you’ll have the same access to unlimited accounting services and IR35 guidance from your dedicated specialist accountant. Find out more
- Specialist IR35 law firm support – here at Intouch we’re supported by Brookson Legal, the only SRA regulated law firm that focuses on IR35 implications for contractors, agencies and end-hirers. With their support we’re able to approach agencies and end-hirers, to help ensure the IR35 rules are being applied properly and that the impact on contractors is mitigated.
Need more information on IR35 legislation changes?
If you are looking for further support and information regarding IR35 changes, download our free IR35 guide now to get a full overview of IR35 legislation changes and have all your questions answered.
Ready to talk to us about our IR35 services and the other accountancy services we can offer you to support your career in contracting?
Get in touch today or give us a call on 01202 375562.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional contractor accounting advisers. If you have any specific queries, please contact Intouch Accounting.