We've compiled the FAQs we receive from contractors regarding the legislation changes.
I am a limited company contractor operating outside IR35 - how are the IR35 changes likely to affect me?
Up until April 2021, you determined your tax status – the Agency and Client had very little to do with this. But, from 6th April 2021, it is the Client’s responsibility to assess and determine your status.
This will mean one of two things:
Outside IR35 – you carry on as you are now via your Limited Company (PSCs)
Inside IR35 – you need to change your payment method as the fee payer is responsible for deducting income tax and NI. If you contract through Hydrogen, you can choose from the following payment options:
Via your Limited Company (PSC) with full Tax and National Insurance deductions taken from your pay (where no blanket instruction is in place from the end client)
Via Hydrogen's PAYE scheme
Via an Umbrella Company PAYE scheme, using one of the five trusted companies on our PSL
How is the review process likely to work and will I input?
As this is the Client’s responsibility, they’ll likely engage with Legal specialists or use internal legal teams to undertake the reviews on a role by role basis. You may be asked to input, depending on their process.
Some Clients may rely on the HMRC assessment tool, CEST, yet around 20% of these results are inconclusive and invite the Client to follow up with HMRC by phone which may not be practical. Recent case law has shown that CEST, in its current form, does not match up to case law, however, HMRC stands by their tool and continuously update it to try and improve usability and make it more steadfast.
What are my options if the Client deems that I am caught by IR35 and I want to contest?
The key to this will be to work with your Client and Agency to understand why you have received an inside IR35 status. In some circumstances, you may be able to tweak your ways of working to put the assignment outside IR35.
Please be aware that the Client has a responsibility to exercise ‘reasonable care’ in making determinations.
What happens if I disagree with the outcome?
If you’re unable to tweak your working methods in order to remain outside IR35, then you will have no choice but to accept the deductions if you want to continue in the role post-April 2021. You can appeal your status with the End Client, following the client-led disagreement process. The End Client will have 45 days to respond to your appeal. Alternatively, you can appeal your status with HMRC through your tax return. You should speak to your accountant for more details on going down this route.
Will it put my company at risk of further IR35 claims if I am deemed as inside IR35 post-April 2021?
HMRC have confirmed they will not make retrospective claims against limited companies if they change their status from outside to inside IR35. However, we would always exercise caution as there have been circumstances where this has happened in the Public sector.
How will it work for future roles?
In the future, it’s likely that Clients/Agencies will advertise roles as either inside or outside IR35. This means contractors are clear from the outset and can adjust their rates accordingly. Over time we expect that roles will become more clearly defined and Clients will further segregate workforces to reflect this.
Is my contract via Hydrogen Group IR35 friendly?
Yes, Hydrogen Group’s standard contract is based on APSCo standard terms for those working outside IR35. Please note, just because your contract is written that way does not mean your working practices are outside IR35. The Client would need to agree to the right to substitute, for example.
What’s the financial impact if I am caught inside IR35?
Those who fall inside IR35 will likely see a drop in net income of around 20-25%.
Disclaimer: Any advice we give is a matter of opinion and subject to change depending on the coming consultations and how this may affect the legislation.
Last updated: 25/03/2021