I’m an energy sector contractor, should I be worried about IR35?

The IR35 reforms are due to come into force on 6th April 2021 and, on the whole, energy sector contractors are…

Author Photo by Olivia Bufton

The IR35 reforms are due to come into force on 6th April 2021 and, on the whole, energy sector contractors are feeling prepared for IR35. According to the results of Kingsbridge’s contractor survey, 73% of contractors working in offshore, energy, oil and gas feel prepared or, at least somewhat prepared for the new legislation. This is about the same as contractors in general from all sectors.

However, only 50% feel that the energy industry, end clients and agencies are prepared for the reforms. Now, this is a little better than the average figure across all sectors, which stood at 45%, but even if workers in the energy sector do feel slightly more prepared for the reforms, that’s still half of all energy sector contractors who feel as if their industry simply isn’t ready for reforms taking place in just over a month’s time.

When looked at it like that, that isn’t great as contractors should be able to have faith in their clients and recruiters. If you are concerned that your contractor supply chain isn’t prepared, now is the time to start communicating with clients and recruiters to ensure they’re aware of the changes and what they need to do.

Will IR35 affect contractor rates in the energy sector?

One of the questions asked of contractors in the survey was whether they would let IR35 affect their day rate. Interestingly, contractors in the energy sector are 10% less likely to allow the IR35 reforms to affect their rates.

However, we advise contractors to bear in mind that if they get an inside IR35 determination from their client, they will ultimately pay more in tax and NICs than previously, so you may want to consider increasing your rates in order to recover some of these losses so that you’re not left out of pocket.

Energy sector workers may be assessed later

When asked when they expect to be assessed for their Status Determination Statement (SDS) by their end client, over 30% of energy contractors said they don’t expect this until after April, which is a bit higher than the across-the-board average of 25%.

You don’t want your client to panic on 6th April and end up issuing a rushed SDS that a) may not take your situation properly into account, and b) could leave them liable for your taxes and NICs if it transpires they haven’t taken due care.

It’s important to communicate this to your end client and recruiter so you can work together to ensure the best possible outcome for all. So, don’t ignore the fact that your client hasn’t discussed your SDS yet – they’ll have to do it sooner or later so it’s best to get in front of things.

The lasting impact of lockdown

While things are starting to look up as we begin to see our way out of the coronavirus pandemic, many energy sector contractors are still feeling the effects. Offshore, energy, oil and gas contractors were more likely to say they had less support from the government than the average contractor and so you may currently be in a worse financial position than most.

One contractor commented, “there’s been no government scheme or aid provided for freelancers/consultants out of work in the oil and gas industry during this time.” This makes it doubly important for energy contractors to secure an outside IR35 determination in order to help maximise income and claw back any losses incurred during the pandemic.

The economic repercussions of COVID-19 will likely continue for several years, but this may be to the advantage of contractors who often find businesses prefer flexibility and short-term contracts over full-time employees during economic downturns.

So, although things may look bleak at the moment, we predict energy sector contractors are soon to see a rise in demand and, for this reason, you need to ensure you’re in the best possible position in relation to IR35.

How can energy sector workers prepare for the reforms?

With only a few short weeks to go, now really is the time to kick things into gear and prepare for the IR35 reforms. The first thing you should be doing as an energy sector contractor is taking a look at your contract and making sure that

a) it’s water tight in terms of wording and clauses pointing to you being self-employed, and

b) it’s aligned to your actual working practices.

If either raises any red flags for you, have a chat with your client.

However, before you book in that Zoom meeting, it’s definitely worth getting a third-party opinion – and that’s where we come in. Our Kingsbridge IR35 Status Tool is an exclusive service, developed by our Head of Tax, Andy Vessey, who has used his 20+ years of experience with the legislation to come up with a way to get you an instant, accurate IR35 status.

The tool asks between 29 and 34 yes/no questions in order to get a rounded view of your contract and working practices. It then uses these to issue you with an inside or outside IR35 status determination, along with a comprehensive report showing you the strong and weak points of your engagement.

If your result is indeterminate, it is passed over to one of our in-house IR35 specialists for review and, after manually going through your answers, will be able to issue you with your status.

So, you can demonstrate your status (and reasoning) to your client, and you can both have confidence in your SDS.

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Contractors IR35