I am a limited company contractor operating outside IR35 - how are the proposed changes likely to affect me?
Currently, you determine your tax status – the Agency and Client have very little to do with this. But, from April 2020 it will become the Client’s responsibility to assess and determine your status.
This will mean one of two things:
- Outside IR35 – you’ll carry on as you are now
- Inside IR35 – you’ll need to change your payment method as the fee payer will become responsible for deducting income tax and NI.
It might be possible, with some straightforward tweaks to the way you and your Client work together, for your assignment to sit outside of IR35. If you contract through us, we’ll work closely with your Client to implement any applicable changes. These conversations should be starting as soon as possible.
This will either be agency PAYE, umbrella PAYE or net payment to your limited company.
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 20-30% 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 are working on an updated tool – the BETA version is due for release and testing over the coming months.
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’ on making determinations and further detail around what this means is expected in the consultation.
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 2020. You can appeal your status with HMRC through your tax return, so 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 2020?
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%.
What action can I take to get further clarity on my position post April 2020?
Many clients are either unaware or uneducated on the real impact of the legislation. We need you to help us raise awareness with clients and colleagues by speaking to your clients about the impending changes and getting them to engage with us. Our aim is to work with clients closely in the run up to go live to ensure that the right policies and processes are in place and that changes are being made now to ensure that any working practise that can be altered to support status assessments are underway.
Disclaimer: The legislation is not due to come in until April 2020 and has not been finalised yet. 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.