Will IR35 be the end of contracting?
IR35 is very nearly here. For real, this time. With the coronavirus vaccination programme rolling out through the UK, it’s increasingly unlikely that there will be any further delays to the IR35 reforms, which were dramatically postponed at the last minute by Chancellor Rishi Sunak in March 2020 as the pandemic took hold and we battened down the hatches in lockdown. The reforms are now due to launch on 6th April 2021, with MPs having set that date in stone last year.
So, what are the changes due to come in? We’re sure most contractors are familiar with many of them by now, but a refresher can’t hurt, especially with just over two months to go.
What’s changing with IR35?
1. Currently you, the contractor is responsible for determining your IR35 status (i.e., whether you are genuinely self-employed or, to all intents and purposes, an employee) for any given engagement. You are also liable for paying the correct tax and National Insurance contributions for each engagement.
This will continue to be the case for any engagements carried out before 6th April 2021. It will also continue to be the case if your clients are classed as small businesses. The reforms only affect contractors with medium or large clients.
2. The reforms mean that for engagements after 6th April 2021, your end client becomes responsible for determining your IR35 status, which they will do by issuing you with a Status Determination Statement (SDS). You will have the right to dispute your SDS if you don’t agree with it and your client has 45 days to respond, although they do not have to make changes.
3. The liability for correct tax and national insurance contributions will transfer to your fee payer. This could be your end client or it could be your agent or recruiter. So, if you are found to be inside IR35 (and therefore considered a disguised employee) your fee payer will deduct tax and NICs at source using PAYE at the same rates as an employee (but without any of the core benefits).
If you were wrongly placed outside IR35 and this was investigated by HMRC, it would be your fee payer who would be liable for outstanding taxes as well as any interest and penalties.
4. For engagements where you are outside IR35, you will continue to pay tax and NICs through Self-Assessment.
Will these changes to IR35 spell the end of contracting?
In short, no, we don’t believe so. Believe it or not, the situation is not quite as dire as it was last year. The delay has given contractors and businesses extra time to prepare for the reforms and contractors, clients, and recruiters are all telling us they feel more confident in the run up to April 2021.
Additionally, the economic situation after the pandemic means that contractors will be a desirable alternative to permanent employees as they try to save money and so we expect to see increased opportunity for contractors in spite of the reforms. You can read more about how we think IR35 could affect the UK contracting economy here.
However, we do appreciate it’s important that you can demonstrate your status clearly. This will enable you to keep work with existing clients by helping them see you are outside IR35, but also will help you acquire new clients, by showing you’re not a financial risk. But how best to do that?
How Kingsbridge can help
Firstly, you could take advantage of the Kingsbridge IR35 Status Tool. For just £50 plus VAT, our exclusive, award-winning tool takes a full 360 view of your contract and working practices – using questions devised by our Head of Tax, Andy Vessey – to give you and/or your client an accurate status determination.
If your case is clear-cut, you’ll get an instant determination along with a full, comprehensive report that shows you all of the pluses and minuses of your engagement. If, however, your result is borderline, your answers are passed to one of Kingsbridge’s in-house IR35 specialists for a manual review before issuing your determination and report, giving your client and fee payer confidence in your status.
Secondly, you could minimise any risk further – and boost your appeal to clients – by taking out IR35 Protect insurance. This unique, flexible cover protects everyone in the contractor supply chain by flexing to cover whoever holds the tax liability for any given engagement, whether that’s you or your fee payer.
It covers for taxes, interest, and penalties arising from HMRC investigations, as well as also offering standard Legal Expenses cover. The Premium package also includes unlimited access to the Kingsbridge IR35 Status Tool.
You can speak to Kingsbridge about your requirements around IR35 on 01242 808740, and our friendly, expert team will do everything they can to help. If, in the meantime, you have any questions around IR35 that you would like answering by an expert, you can ask Andy Vessey himself, and he’ll do his best to answer through our blog.
Just send in your question using this form.