IR35 Reform Repeal: Your Questions Answered
The IR35 reform repeal has caused quite a stir, and if you’re sitting there wondering what exactly it means for you, you’re not alone. Last week, to help you get to grips with the upcoming changes, Kingsbridge’s IR35 experts hosted a webinar covering what the IR35 reform repeal means for contractors, end clients and recruitment agencies.
If you didn’t catch the webinar, fear not – you can watch the recording here. Understandably, there were tonnes of questions around the repeal, so we decided to put together this handy Q&A that should address any concerns you have about the upcoming reform changes.
1 – What’s the risk to contractors post-April 2023?
We had several questions from contractors who were worried about the implications of changing their IR35 status on or after April 6th 2023, so we have broken it down into three sections, based on these common scenarios: whether you are moving from inside to outside IR35, staying outside IR35, or moving from an umbrella company to a limited (LTD) company.
Inside to outside IR35
It may be the case that your client deemed you inside IR35 prior to April 2023 and you disagree with that decision and plan to work outside IR35 post-April 2023. However, remember that your client has put together a document outlining why they believe your engagement is inside IR35.
The sticking point here is if HMRC decides to take you up for enquiry. In the event of an enquiry, the client’s opinion would be factored in, and this is likely to carry substantial weight. In this instance, you would need to demonstrate that they got their initial assessment wrong, and you would need ample proof to show why you believe yourself to be outside IR35. Below are some useful things you can do to prepare yourself for this situation:
- Evidence of what has changed to justify your new outside IR35 position. For example, you could change your working site, who you’re liaising with, what your services are – anything that can show changes in your circumstances.
- Get a working practice review and contract review, and, if you’re able to, get these signed off by the client. These are the first steps in proving your status. It may be that you need to have a chat with your client to determine whether you truly are inside or outside IR35. Provide them with reasons as to why you believe you are outside and see if you can reach an agreement.
- Speak with your client or agency to try to negotiate more favourable IR35 terms – whether that’s amending or negotiating your contract.
- Keep all documentation or evidence that you’ve gathered with regard to your status. One example of this might be emails that help support your position.
- Finally, get insurance. There are two types of insurance products available. One that covers IR35 investigation costs and one that covers tax liability if HMRC is deemed successful in challenging your status.
Staying outside IR35
If your client deems you to be outside IR35, and post-April 2023, you also deem yourself to be outside IR35, we still recommend that you do your own due diligence. Determining status is opinion-based, which often makes it tricky to judge, and you won’t be able to rely on the fact that because you were previously outside IR35 that this will still be the case post-April.
We suggest following the steps below to ensure you are on the right track to proving your IR35 status.
- As with the case of those going from inside to outside IR35, get a working practice review and contract review, and get these signed off by the client if possible.
- Negotiate more favourable IR35 terms with your agency or client.
- Ensure you retain all evidence that proves you to be outside IR35.
- Keep the current SDS you have with your client, which will provide HMRC with evidence that both parties are on the same page with regard to
- Make sure you are insured. As mentioned above, there’s a cover for IR35 investigation costs and a cover for tax liability in the case that HMRC is successful in challenging your status.
Umbrella to limited
If your client imposed a policy prior to April 2023 that they would no longer engage with LTD companies, and you were directed to work through an umbrella company, you were likely then treated in a similar way to an employee. So, for you to have confidence that your working status is outside IR35, what needs to change is how the engager treats you. For instance, consider whether you have the genuine right to substitution.
We recommend that you follow the same advice as a contractor going from inside to outside IR35 (above) to fully understand the working arrangements and help you negotiate more IR35-friendly terms and practices.
2 – I’m a current Kingsbridge IR35 policy holder. Does the insurance still protect me after April 2023?
The IR35 reform repeal won’t affect your insurance whatsoever. Our insurance policy will cover whomever HMRC deems liable, whether that’s the end client, agency or the contractor. After April 2023, the responsibility of status, tax and NIC will sit with the contractor and, therefore, our policy will cover the worker in exactly the same way.
Another point to note is that there will be no need for you to contact us in order to change cover – it will simply cover you rather than your client and/or agency.
Our current policy will cover up to £100,000 worth of tax liability and up to £100,000 in the cost of defending you.
3 – Will there be a requirement for contractors to produce a status determination statement (SDS)?
Currently, there’s an obligation for clients to produce an SDS, which outlines the contractor’s status in respect of IR35. The off-payroll reform, which came into effect in the public sector in 2017 and the private sector back in 2021, introduced the idea that the client needs to issue this SDS.
With the repeal of the off-payroll reform as of April 2023, we’ll be returning to the previous rules – i.e. those of 2016 – which didn’t require the contractor to produce an SDS. However, this may change, depending on what guidance is released.
4 – Does Kingsbridge have a status tool to produce IR35 determinations for a contractor post-April 2023?
Yes. This is something Kingsbridge can help you with – click here to access our contractor IR35 tool. We have conducted over 50,000 IR35 assessments since introducing the tool. Alternatively, if you have a contract you’d like to review, contact us on 01242 808740 to get clarity on a contract status.
5 – Does the repeal affect both private and public sectors?
Off-payroll reform is due to be repealed for both the public and private sectors. ALL contractors, regardless of the sector that they work in, will be responsible, as of April 2023 for determining their own status. With that, the contractor will also carry the tax liability burden.
6 – Is the CEST tool still valid?
The CEST tool (which stands for Check Employment Status Tax) is an employment status tool, introduced by HMRC in 2017 in response to the public sector changes. The aim of the tool was to provide help and assistance to public sector bodies when coming to a conclusion on what the employment status of those workers should be.
However, there are many criticisms regarding the CEST tool, as, on the whole, it isn’t fully reflective of what case law suggests. For instance, it fails to address mutuality of obligation – one of the three key status tests.
On top of this, some of the questions are unfairly weighted. One example of this is the question ‘Do you have the right to reject a substitute’, ‘yes’ or ‘no’? CEST doesn’t take into account the fact that a reasonable right of veto of substitution does not diminish the right of substitution (ROS).
Whilst the CEST tool does have some benefits, we recommend that contractors don’t use it – and instead go to an expert who can provide contract reviews and working practice reviews. There’s a host of different providers who offer this, and among those is the Kingsbridge IR35 status tool, which you can get more information on here.
7 – Is the way that IR35 status is assessed going to change in April 2023?
The way that an individual’s employment status is assessed will likely remain the same post-April 2023. However, this won’t be completely clear until we have further guidance. It is likely that the three key status tests will remain as they currently are. These are Personal Service, Control and Mutuality of Obligation. So, from a contractor’s point of view, nothing will change. Where it does differ is that the responsibility will no longer sit with the client but will, once again, return to the contractor to decide their IR35 status from 6th April 2023.
8 – What do agencies and end clients need to do between now and April?
When it comes to whether agencies and end clients need to do anything in the run-up to April 2023, the current rules apply until then, so we suggest that you continue completing SDSs and follow due diligence, as you will retain liability until April 2023. Don’t be tempted to jump the gun until we know what the guidance is. You may want to help contractors (even if it’s no longer your responsibility) to ensure compliance within the supply chain.
9 – Do we know when guidance is scheduled to come out from HMRC?
As of yet, no information has been provided about when or even if we’ll receive guidance with regard to the upcoming off-payroll changes. As far as we at Kingsbridge are concerned, we will see a return to the old rules (those from 2016). However, we will keep you up to date with any news and relevant information as and when it comes up.