As the deadline for IR35 reform approaches, we’re beginning to see evidence of various approaches that reduce the risk of making incorrect assessments. Now the end client is the one left carrying the can, getting assessments wrong could have serious financial repercussions for companies with a large contractor base.
In addition to companies such as Zurich, Royal Mail and National Grid imposing outright bans on limited companies, there’s been reports of agencies advertising contracts that are outside IR35 until April 6th, after which time they automatically become inside. Another tactic is to advertise contracts with a renewal or end date at the end of March, just before reform in April. It’s likely that the renewed contract will be inside IR35. In both cases, this suggests that employment status can change overnight, with no apparent reason.
In fact, contracts of this nature highlight an obvious contradiction, as well as the likelihood that the client has not taken the required reasonable care in making the determination. Unless there are significant changes to the way that a contractor is engaged, which are also reflected in their daily working practices, it’s unlikely that their employment status would legitimately change.
End clients and agencies may try to navigate round this by introducing blanket clauses and terms into the new contract. There have been many examples of ‘foregone’ assessments that guarantee an inside status by “locking” certain answers when using an assessment tool. For example, if an end client uses an assessment tool, but locks the right of substitution question to exclude this possibility, this will automatically result in an inside IR35 result.
This presents an obvious concern for contractors who have been working on outside contracts that suddenly become inside IR35. HMRC have said they won’t typically open up new IR35 enquiries into contracts that shift status as a result of the reform, but this can’t be entirely discounted after it happened in the public sector with GKS. Neither can retrospective IR35 investigations that examine completed contracts, when contractors carried the liability. By allowing themselves to inspect engagements if they “suspect fraud or criminal behaviour”, HMRC have effectively left the door open for retrospective investigations.
Kay Adams recent win against HMRC could provide some reassurance for genuine contractors who find themselves suddenly ‘inside IR35’ following the April 6th rules. Despite the contractual terms and the CEST tool indicating an inside IR35 status, Adams was found to be outside IR35 based on her actual working practices while engaged by the BBC. While contractors concerned about being investigated retrospectively can take comfort from this, it’s a good idea to continue exercising due diligence wherever possible, such as keeping paperwork evidence that supports your independent status.
For contractors facing an overnight switch in their IR35 status, it’s a good idea to start preparing in order to avoid getting caught out. The agency is likely to specify that contractors go onto an umbrella payroll when the reform comes into effect on April 6th. Because the umbrella will act as the contractor’s employer, deducting Tax and NICs at source, the IR35 legislation will not apply. By taking the initiative and having an umbrella company in place, you’ll avoid any delay in continuing your contract, or starting another one.
If you work on a variety of contracts, it’s also worth remembering that you can keep your limited company open for contracts that are outside IR35. By retaining your limited company and engaging the services of an umbrella company, you’ll be able to choose from the widest variety of contracts. However, if the majority of your work will fall inside IR35, it’s unlikely to be worthwhile paying the administrative costs of keeping a limited company operational.
This content has been supplied by IR35 Guru
To find out more about IR35 reform you can read out updated guide. Umbrella Exchange has access to a wide range of hassle-free services that can help you with setting up a limited company or finding the right umbrella company for you. To talk to a member of our team, call: 0203 393 3881
