Say 'NO' to blanket assessment of ‘inside IR35’

IR35 is not new

Most of you have already been aware, In the 2018 Budget the Govt announced that it would reform the off-payroll working rules in the private sector from April 2020, in line with the reform introduced in the public sector in 2017.

This off-payroll working rules have been in place for nearly 20 years and not new, this is designed to ensure that individuals working like employees via PSCs (personal service company) pay similar payroll tax and NIC as those were employees.

Please note that this reforms to IR35 is nothing but onus of assessing and taking decision whether contract is ‘inside IR35’ is given to Client contrary to current rule where Contractor by himself does review and decide the status of assignment under IR35 each tax year. 

Don’t be trap in to blanket decision

Don’t come in to this trap by big players in market on this new IR35 reform, this does not mean that a genuine self-employed contractor should accept a blanket decision from client on a limited fact that they don’t have time, guidelines to assess and review thousands of contracts within short span of time. 

HMRC estimates only a third of contractors should be caught by IR35

IR35 rule only applies to individual who are working like employees.

In the average 1,600 cases Qdos has handled over the last years just three have been found to be inside IR35.

In a blanket decision route, your client may want to avoid any risk but it will be very costlier agreement for you if you are having a genuine self-employed contract. In other words, it would be unwise to assume that so many contractors belong inside IR35. That said, it would also be naive to assume that the majority belong outside the rules. Every contractor deserves to have their status assessed thoroughly and fairly.

IR35 is not applicable

In response to the feedback and consultation after April 2017 reforms from govt and private bodies all industrial sectors, announcement came in budget 2018 that reform would not apply to engagement if end-use client is a small company (definition in company law at least meet two criteria):

1. Annual turnover no greater than ￡10.2m;

2. Balance sheet no greater than ￡5.1m; or

3. Average number of employees no greater than 50

For medium and large organisations 18 months’ time was given to prepare

• further draft legislation was shared by HMRC in July 2019
• along with guidance in Aug 2019 on how business and intermediaries can prepare for the change, and
• released enhanced version of the check Employment status for Tax service (CEST) in Nov 2019

What's an ideal scenario?

Although few of areas are not fully covered in CEST tool for assessment, currently it is advisable to perform this CEST tool test run in combination with guidance note and take another recommended insurance backed Contract review from professionals such as QDOS because it does include questionnaires that is more comprehensive and assessments are reviewed by professional on subjective matters to include all draft published guidances that results near around right assessment.With this in mind, an independent assessment offers a far more reliable way to determine IR35 status accurately, whether that’s for existing or newly engaged contractors.

Following, to this self-assessment you should plan to meet with client to review your contract and share the result to take consent in declaration form whether they (all in supply-chain) are in agreement to continue.

The blanket decision can impact most of contractors badly and ultimate tax burden is upon self-employed contractors whether you want to take this hit, but doesn’t necessarily means that you have to opt for a blanket decision.

All self-employed should accept decision on assessment only after contract review. This can differ from project to project and client to client basis.

After due consideration, if in case it falls under ‘Inside IR35’ – and if you still want to work on assignment then my personal recommendation is to take employment contract directly from client avoiding any preferred agency payroll or ‘Umbrella’.

You can read more about my next articles covering following points:

1. Why shouldn’t I opt for preferred agency payroll or preferred ‘umbrella’ if ‘inside IR35’?
2. FCSA is not only one organisation in market to do accreditation for payroll agency business, report it to CMA if you have been asked by your agency!
3. Take suggestion from your Accountants and expert advice from independent IR35 Consultant before taking decision