The below post has been written by our partners at Hiscox.
If you’re a contractor in the UK, you will have to have been hiding under a pretty hefty rock to have not heard about forthcoming changes to IR35.
Despite that, and despite those changes coming into force from 6 April, UK contractors are still confused by the changes and many haven’t yet taken any action to understand how they might be affected.
With implementation looming large, now is the time to engage your end client to explore whether you will be deemed ‘inside’ IR35 – meaning your employment status or contract terms could change, and then speak to your accountant or tax advisor regarding how your income will be impacted.
Before doing so, however, we’ve set out five core IR35 details you need to know to make sure that conversation is as useful as possible:
1 – IR35 isn’t new – it’s just changing…
IR35, sometimes called ‘off-payroll working rules’, is nothing new. It’s been around since 2000, when it was introduced by HMRC to tackle people who were effectively doing the work of an employee but were set up as a contractor to take advantage of tax efficiencies. What’s happening now is that the government is taking the onus away from contractors to declare their status, and instead making it the responsibility of the ‘end-client’ – the firm you are contracting for. If they deem that you are ‘inside’ IR35, meaning you are really doing the work of an employee, they will be required to change your tax and National Insurance contributions. That could mean you earn less.
2 – Not all contractors are affected
IR35 only actually applies to contractors providing their services through Limited Companies, also known as Personal Service Companies (PSCs). If you are an umbrella company worker, a Construction Industry Scheme contractor, a direct PAYE employee or a sole trader, it won’t affect you. Also, ‘small’ companies have been made exempt from the rule changes, so if your contract is with a company deemed by the government’s rules to be small, you shouldn’t be affected. However, for those considered ‘inside’, the impact could be considerable – so it’s important to know where you stand.
3 – The assessment will be based on ‘what you actually do’…
There has been some talk that if you have multiple contracts or a ‘Statement of Work, you will automatically be ‘outside’ IR35. That’s not strictly the case, however. Even if you have multiple contracts, each one will be considered on a case-by-case basis. Multiple contracts don’t necessarily prove you are a genuine contractor. If you genuinely supply ‘Statement of Work’ services, meaning services that are not labour or personal services, then you will likely be deemed outside IR35. But again, this will be based on what you actually do rather than what’s written in the contract.
4 – There’s not a lot of course for appeal…
There will be opportunity for you to challenge if you feel you’ve been unfairly deemed ‘inside’ IR35. But, ultimately, it will be up to your end-client to decide and you will have limited influence over the final outcome. Also, if you make a challenge, the client will have up to 45 days to produce their paperwork, in which time you could already be out of pocket.
5 – You could be out of pocket, which is why it pays to know where you stand…
If you’re deemed to be ‘inside’ IR35, the chances are you’ll have to pay more tax and National Insurance – and your income will go down unless you renegotiate your rate. Either way, it will certainly pay to speak to your accountant to understand what impact IR35 might have on your income.
With so much ambiguity remaining around IR35 changes – and so little time until they come into force – you should act now to better understand how you might be affected, and how the changes might impact your income. Contacting your accountant is a good place to start, as if they are contractor specialists like SJD Accountancy, they will be able to advise on the implications of this decision to aid your decision making.
If you’re outside of IR35 and would like to ensure you are protected for the services you carry out as a contractor, speak to Hiscox. Clients of SJD accountancy get an exclusive 15% discount on Hiscox business insurance covers for the life of their policy.
Call 0800 280 0358 visit hiscox.co.uk/sjd to get a tailored business insurance quote today
Update: at the time this article was written, the off-payroll (IR35) reforms were due to be implemented on the 6th April 2020. On the 17th March 2020, the UK government announced that it would be deferring the reforms to the 6th April 2021 to help businesses and individuals during the COVID-19 crisis.