Getting ready for IR35 webinar
The webinar was designed to be practical - arming contractors with information that can help them be proactive in preparing themselves and educating their end clients in the run up to 6th April. The session attracted a lot of contractors keen to ensure they're ready for the IR35 reforms scheduled to be implemented on 6th April 2020 (just over a month away). For those who weren't able to make it though, we've put together this summary of all the pertinent points or you can catch the full recording on Youtube.
(Information correct at time of recording: 20th February 12.30pm)
Legislation and government update
Andy Chamberlain kicked off proceedings with an update on where the IR35 legislation is at and whether or not any delays are expected.
He stressed how it's been something of a rollercoaster for IR35 since December 2019 when then-Chancellor, Sajid Javid announced Conservative plans to review changes to IR35 should they win the approaching General Election. Fast-forward to January 2020 and the somewhat disappointing news that the review would only, in the Treasury's own words,- determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come into force in April 2020.
IPSE was disappointed that the review had no independent Chair, didn't include a delay, and was all about implementation and not the actual effects, which could see even entirely compliant self-employed businesses close as a result. Regardless, the review was due mid-February and we are now at the end of February with one new Chancellor in Rishi Sunak but no report as yet - and no current idea of Sunak's own feelings on the legislation.
The final legislation itself is due after the Budget, which will be held on 11th March 2020 after much speculation that there could be a delay. This is after draft legislation was published in July last year. Some changes are already known, including the fact that work carried out before 6th April will not fall under the update rules, even if payment is made after that date. IPSE is hopeful that there will be some other changes to the wording, including:
- A necessity for small businesses, that are engaging contractors, to declare that they are exempt so that contractors are clear that liability lies with them
- Liability remaining with the end client should they make an incorrect Status Determination, rather than it shifting to the fee payer even if reasonable care had been taken
Chamberlain will be giving evidence on behalf of IPSE at the House of Lords Finance Bill Sub-Committee and IPSE will continue to push for a delay -although he concedes that the closer we get to 6th April, the less likely this is and that contractors and businesses should continue to prepare.
The main status tests
The torch was then handed to Matt Tyler of Larsen Howie to educate contractors on the main and minor status determination tests so that they can look at their own working practices objectively.
The three main status tests used by HMRC and end clients are:
- Lack of personal service (right of substitution)
- Levels of control
- Intended mutuality of obligation (MOO)
Tyler took a closer look at each of these in turn to give a bit more detail on the scope of each test.
Lack of personal service/right of substitution
In short, a legitimate contractor has the right to send an appropriately qualified alternative to carry out work in their place. Tyler likens this to hiring a plumber to mend your toilet. You don't care if Tommy or Joanne comes to carry out the job as long as you have a working loo by the end of it. This should be the case with any contractor assignment.
However, there is sometimes confusion around this as contractors worry they have never sent a substitute to do work for them. Tyler stresses that this doesn't matter. It's the right that's important, not whether it's invoked. It should be discussed during contract talks and a clause to this effect should be in the final contract between the engager (client or agency) and the contractor.
Levels of control
Control is a complicated one because there is often confusion over what control actually means. Ultimately, it boils down to the fact that an end client has control over what the work actually is - they set the project - but the contractor has control over how the assignment is completed.
A contractor should be able to decide on his or her own tasks and not be "managed". In addition to this, the contractor should be able to decide on where the work is carried out -although this has to be taken within context. For instance, a server architect will likely have to work onsite to have access to the servers. The contractor should also have control over their own hours, although there is some flex in this rule too as requirements to work with specific people may dictate some hours.
Intended Mutuality of Obligation (MOO)
MOO refers to there being no obligation on the client's side to offer work, or the contractor's to accept it. This obviously applies after the contract end date, but can also apply during. For instance, a client could offer a contract extension, but the contractor is not required to agree to it. If these obligations exist, it speaks to a more employer-employee relationship.
Minor status tests
Tyler then went on to outline some of the more minor tests, stressing that these should not be underestimated or dismissed as they can be vital in providing clarity on a status determination. They include:
- Financial risk - the greater the financial risk to the contractor, the stronger the indication of self-employment
- Provision of equipment this usually only applies to big-ticket items like expensive software or hardware that is only required to do that job, not laptops and basic office equipment.
- Basis of payment -a contractor should not be receiving a regular fixed sum
- Integration -a contractor should not be an integral part of the organisation
- Length of engagement -the shorter the better, although long-term is fine if other criteria are met
- Right of termination - the contractor should hold this right, not just the client
- Non-exclusivity - non-compete clauses are fine, but a client can't hold exclusive rights to a contractor's services
- Employee-type benefits - these are a no-no
- Intention of the parties - both parties should have the intention of this being a client-contractor relationship
- Employment terminology - avoid terms in your contract that would suggest an employer-employee relationship
- Office holders - while office holders can be self-employed, it would be difficult to meet all the status requirements to stay outside IR35
Contractors should become familiar with both the key and minor tests so that they can apply them to their own working practices to ensure they don't come under scrutiny. For instance, in terms of integration, did you know you can attend a client's office Christmas party, but you would need to pay your own way? Lots of seemingly small things like that could throw your status determination in jeopardy if you aren't aware of them.
What can contractors do?
It was then Nicola Hayman's term to look at how contractors can help themselves in the run up to and during the implementation of the off-payroll rules. Hayman looked at various suggestions such as:
- Statement of Work (SoW)
- Moving to a different organisation
- Working with small companies that are exempt
- Leaving the country (seriously)
- Considering other engagement models such as agency work and umbrella companies
- Educating themselves, their peers and their clients
She advises caution though, pointing out that there are no real quick-fixes to IR35. For instance, SoW's need to be properly implemented so that they don't seem like avoidance; there are not enough small companies to engage all the UK's contractors; and caution needs to be used when working with umbrella companies - if it seems too good to be true it probably is.
Hayman stated that contractors should work on the basis that there will be no delays: IR35 is coming. With that in mind, contractors should spend the next month reviewing working practices and gathering their evidence of their status, purchasing IR35 insurance, and talking to clients and recruiters about their approach. With the right preparation, hopefully IR35 won't create too many waves for you.
If you have any questions relating to your IR35 status then you can get in touch with Larsen Howie. They are part of the Kingsbridge Group and offer specialist IR35 working practice reviews as well as full contract reviews.
If you have any questions relating to our IR35 Protect cover then please visit https://www.kingsbridge.co.uk/ir35_and_legal.html or call us on 01242 808 740 and a member of our customer service team will be happy to help.