COVID-19 & IR35 versus IT Contractors - don't wait until 2021

Maintaining business as usual as an IT Contractor or as the IT Manager of a big business - has just got that bit harder with COVID-19

IR35 Governance has been delayed to 2021 - but it just cannot be dropped from your priority list, too

Both are about to invoke colossal change within the IT Contracting sector and whereas COVID-19 we must worry about on a day by day basis - IR35 worries can be taken control of and action accordingly ASAP.

Background

In the UK -HMRC has started it's claw back of the estimated ￡1bn of uncollected taxes from contractors. from the ever growing gig-economy. Four HMRC departments have teams of ten (and they are growing) to kick off the investigation works and they have plenty fish in that barrel to have a go at! Delay to policy or not if you are not paying the appropriate taxes you will be liable to being caught by IR35 and face the consequences.

The UK contractor market has grown rapidly from 3 million to near 5 million in the last 17 years and shows no sign of slowing down - it was only a matter of time before it became better policed for those dodging their appropriate taxes.

The majority of contractors work and earn and spend and keep the economy flowing - and are genuinely paying their way. However there is a common perception that all is not legit in contractor land and some have been getting away with it for too long. Government, Parliament, Defense and DWP are all privy too...

So where is the imminent problem?

As of April 2021 its going to be the Clients and larger businesses that will face the liability challenge from HMRC and those unpaid contractor taxes - they'll have to undertake due diligence to prove that those contracted are working either working "within IR35" and should have been taxed by the client and treat as an PAYE employee - or "outside IR35" whereby the contractor can prove that they work externally and as a contractor.

For now its "same old" as the liability still sits squarely at the Contractor - as it has for some time.

Most contractors have used their Limited Company either with a direct contract to a client or through an agency. To conform with IR35 you should now consider the addition of a Statement of Work to align responsibility and keep you outside of IR35.

Contractors offer unique skills beyond those of PAYE on the books staff - and therefore have a higher day rateable value - Contractors have been dependent on how constructive their accountancy skills are and the risk they were willing to take (anyone need a Duckhouse?) - those days are now up! 

Tax rules for outside IR35 are somewhat different as Pay As You Earn (PAYE) - and rightly so - you don't get employment rights, those holidays paid whereas as a freelance contractor the work may well be sporadic and inconsistent - so you take those pay days where you can,

Businesses could be prone to employment law challenges, contractors seeking legacy holiday, sick pay etc - and they don't want that. So they're just cancelling contracts in readiness for April 2021. COVID-19 will just elevate the anxiety for those employing contractors and cause further disruption and knee jerk blanket bans on contracts will continue to happen.

SO if you have regular hours, work to a managed structure and have a regular routine - you are to be in that firing line and could well be prone to a succession of HMRC tax audits and collections. It's also now the potential clients responsibility to grass you up on the way if they get audited too. All of this is not nice and will bankrupt a lot overnight.

Worse still - you may just lose your contract - it being cancelled with immediate effect if you cannot offer IR35 compliance.

Hiding behind an umbrella company will cost you a percentage and offer little protection from HMRC IR35 investigation.

If you are a Client, Agent or even the sleepless contractor - just adding insurance won't keep you in beans - its just insurance - you'll still face a knock on the door.

So what can you do? - do you really believe that an Umbrella is a good idea? are you going to take a client deduction/tax cut? go find a small business and risk the day rate downturn? or make yourself compliant - go comply!

I strongly suggest the latter.

- what you need is a new process and Wolf Group has that you can apply to your Limited Business.

No harm in boxing above your weight - if you can!

Cheers

Justin Pringle

Wolf Group are an IR35 compliant business and work with contractors, agencies and clients - we work with HMRC and we are insured