Changes to the off-payroll rules mean that contractors should be extra vigilant when it comes to the terms of their contracts. In the case of an IR35 inquiry, the written contract will be scrutinised for compliancy, as well as the contractor’s day-to-day working practices. In all cases, the written contract and the working practices should corroborate each other. With the off-payroll reforms scheduled for the private sector next year, contractors who have any doubts about their employment status on an assignment should consider getting their contract reviewed by a professional. This will identify any areas of concern that might compromise the contractor. As long as the contractor hasn’t already signed the contract, if it fails an IR35 review by a professional, the contractor has the opportunity to try and renegotiate the terms with the client from a position of strength.
Although this can be difficult, depending on market demand and how valuable the contractor is to the client, it may be worth trying to negotiate changes. Perhaps the wording of the contract doesn’t accurately reflect the actual situation, or maybe there’s information that was miscommunicated in the supply chain. As the new reforms shift the responsibility for determining employment status onto the end-client, it’s important for both the agency and the contractor to work with the client to ensure compliancy. Although it may reduce risk for end-clients to automatically apply IR35 status, this isn’t in either parties’ financial interests, as contractors caught by IR35 are being forced to raise their rates in order to maintain financial viability.
You should pay particular attention to the areas of your contract that relate to key IR35 determinants, such as Right of Substitution & Control and Mutuality of Obligation. Recent IR35 tribunals have highlighted the importance of applying these key concepts to an individual’s specific circumstances, rather than making broad generalisations. Contractors should be aware that although HMRCs has come under fire from industry experts regarding their simplified and often inaccurate assessments, this hasn’t deterred them from making widespread claims against contractors. Tribunals can be costly, time consuming and stressful, so it’s worthwhile ensuring that your contract doesn’t unnecessarily compromise your employment status in the fist place.
In the case of a contract renewal, there may be an expectation for the contractor to carry on with the same terms as the original contract. However, the renewal of a contract generally indicates that the client is satisfied with the contractor’s services, so this could place you in a stronger position to negotiate better terms that keep you outside IR35 regulations. The client might also value the fact that you’re familiar with the assignment, and might not want the trouble of onboarding another contractor. It’s important to judge your bargaining power and not to burn your bridges if you want the contract regardless.
If your contract is caught by IR35 and you can’t negotiate to remain outside the legislation, you could always opt to work under an umbrella company. This could offer you a compliant payroll solution that will deduct tax and NICs at source, leaving you to concentrate on your contract work. For more information on umbrella companies read our guide or speak to member of our team on: 0203 393 3881