IR35 - Do the Clouds Still Loom?

The calm after the storm

Without a doubt, IR35 and the recent changes to it, is one the most talked about, not so liked and not so well received tax legislation of the United Kingdom. It was designed to address the issue of tax avoidance by workers who supply their services to their clients through intermediaries. But in spite of being enforced since 1999, the IR35 continues to be criticized by tax experts and the business leaders alike. While things may seem to have settled down a bit, it looks more like a calm after the storm. And has it blown over is the question on everyone’s minds?

Especially where contractors in the UK are concerned, they are still trying to get in terms with the impact of this legislation and as they cope with the confusions and chaos this brought about, there is always the chance of another storm brewing.

Confusion prevails

The primary reason why the contractors continue to be wary of this is the fact that they are not sure about the changes. It is not clear at all as to when, how or why the changes will be accounted for by a public sector client of theirs. Legislations need to be clear, concise and consistent so that they are appreciated and followed.

However, despite emphasizing the need for this, the IR35 fails to meet these standards. If anything, it is exactly opposite and this has managed to create and promote confusion in the community. It is but obvious that confusions, especially unresolved will lead to chaos.

A staggering 85% of UK contractors have expressed an opinion that they would entirely leave the public sector if they are placed under IR35 with the new rules. It is important to be clear in order to avoid inconsistency that leads to confusions and fears.

While the finance bill has stated about the importance of ‘reasonable care’ being exercised while setting the IR35 status, it is not so simple. IR35 outlines how those who engage the public sector cannot make any blanket assessments or generalize. This simply means that every contractor engagement is independently as well as fairly assessed. But it has already been reported that this has been violated by one or two public sector organizations.

The implementation lacks clarity

When a legislation lacks clarity, the interpretations vary. This is what leads to the prevailing confusions and chaos in this case. Many instances of individual contractors being given different outcomes on their assessments and subsequent reassessments have emerged. This has resulted in a kind of scenario which has left the door open for contractors to challenge the decisions of the public sector agencies. While contractors are a worried lot, it also makes for a not so desirable situation on the other side.

In this scenario, the entry of the ESS Tool from HMRC only added to the confusion. While it was meant to help determine the IR35 status, it is said to have a lot inaccuracies, as per people who have tested it. And that is expected as the IR35 it is a complex legislation lacking clarity and expertise needed to address the issue. This is the reason why the tool fails miserably and fails to address the situation. The tool itself was launched just one month before the changes itself that came in on 6th April. It was obvious that there was not enough time to have got it right.

While the concerns were noted, and the tool is still being worked upon to right the wrongs, the changes seem more aimed at providing interpretations to questions asked for specific situations.

Initially a very minimal % of the contractors believed in the ability of their public sector clients to understand and implement this reform. That number doesn’t seem to go up to a comforting figure even after two months of implementation. The numbers put out by the HMRC of only about 20,000 contractors being affected by this reform, seems to be far underrated. Considering that there are 1.4 million workforce in the NHS, this doesn’t seem to add up.

The only solution right now seems to be to hope for more accurate and right decisions to be made based on right information including either party; the contractors as well as the public sector agencies. This can help improve the scenario to a great extent and also help in bringing down the confusions and chaos.

Know your facts and rights

So if you are a temporary professional wondering how all this is going to play out, here are a few things to arm you and equip you to handle the scene. While there are many different reactions from the public sector agencies, here are a few notable ones that you can use to determine your stand.

?    Using the ESS tool to assess the roles of the contractors without taking into account any inputs from them

?    Not following the finance bill’s advice of applying ‘reasonable care’ while determining contractors’ placing inside IR35 and going the blanket way.

?    The vice versa of the above point by making blanket determinations in placing the contractors outside IR35.

?    Usage of independent specialists to individually assess contractors

If you are placed outside IR35, it may not be necessary for you to act much upon it. But please ensure that you maintain any necessary evidence or correspondence from your public sector client or agency indicating that you are outside IR35 for your record purposes.

If on the other hand, you are placed inside IR35, and you disagree with this, you need to start by questioning the agency concerned to explain their logic in doing so. The law requires that they provide this information to you within the next 31 days. The explanation can help you have a meaningful discussion to try and sort the matter and arrive at an amicable solution. The next remaining action can be to appeal to HMRC, though the process and outcome of this is still not clear.

Limited Company Contractor are an advisory service for contractors and business owners and provide impartial support on many aspects including payroll, IR35, insurances, banking, pensions, finance, mortgages, wills, estate planning, savings and investments. For further information, contact one of our team on 020 3823 9499 or [email protected] and we will be pleased to help.