Here we address the most frequently asked questions we have heard in our conversations with our contractors about the April 2021 IR35 reforms.
There is a lot of conjecture about the upcoming reforms, and rumours are circulating thick and fast. It is important to get your facts straight before weighing up your options. At Aston Carter, we continue to work closely with IR35 specialists, HMRC experts, and key industry experts to be able to provide our customers with the most relevant and up-to-date information about the reforms.
The following information is intended for general information and guidance only. We recommend that you obtain specific and detailed independent advice from a specialist lawyer and tax adviser who has expertise in IR35.
When the IR35 reforms are rolled out to the private sector in April 2021, responsibility for determining whether a role falls inside or outside IR35 will shift from the contractor i.e. you, to the relevant end-client (hiring company).
If your role is determined to be inside IR35, you will be considered an employee for tax purposes and subject to PAYE in the same way permanent employees are. In a PAYE situation, you will be liable for income tax and employee National Insurance Contributions (NIC) which will be higher than the effective tax rates under the Personal Service Company (PSC) structure.
As each individual contractors’ financial situation will vary, we recommend you speak with your accountant or qualified advisor who should be able to run you through different scenarios involving your rate.
There are a number of important factors that a client will consider in order to determine whether a role falls outside IR35. Depending on the nature of the role, their weighting and type will vary but factors commonly considered are:
Control – Will the contractor have control over where, when and how they perform their work?
Mutuality of obligation – Is there an expectation work will be provided to the PSC and with an obligation on the PSC to accept that work when it is offered?
Right of substitution – Will the contractor be able to provide a substitute for the services?
Financial risk – Does the financial risk for the required services lie with the contractor?
Exclusive service – Will the contractor have the right to take on projects with different end-clients simultaneously?
Part and parcel – Will the contractor have access to staff facilities, staff meetings, staff benefits and attend work social events?
Notice period – Is the contractor willing to have their assignment terminated at any time without reason and without notice?
Provision of equipment – Will the contractor be expected to provide his or her own equipment?
If the end-client is able to answer ‘yes’ to most, if not all, the above questions, it is likely that the role falls outside IR35 and is indeed compliant with off-payroll working reforms.
Yes, you can continue contracting post April 2021. Depending on whether the role is deemed inside or outside IR35, you may have to change the way you are operating from working as a PSC to a PAYE contractor.
There will still be opportunities to work as a contractor in the market, though at this point we cannot make any predictions about the number and types of opportunities as this depends on our clients’ needs and will therefore be dictated by them.
We have strong partnerships with our clients, and we will liaise with them throughout the process to help keep you updated on all developments.
If the end-client determines your role to be inside IR35, they need to send a Status Determination Statement (SDS) to your agency. You will also get an official communication indicating the result of the determination. You then have the choice of whether you are willing to engage as a PAYE contractor through us, and if you were to do this your contract would have to be changed to reflect that you are engaging this way. NICs and income tax will be deducted from your gross pay.
There may be an option for you to continue to operate as a PSC contractor, but you would still be liable for NICs and income tax. In this scenario, we recommend you speak in more detail with a qualified advisor.
The ultimate decision for declaring IR35 status on a job spec is with the client, however we would expect that at least an initial assessment will be made and set out in the job spec. In limited situations, this may be subject to change.
If the worker operates as a PAYE contractor through Allegis Group (our parent company), the benefits of the Agency Worker Regulations (AWR) will apply. In very brief terms, this means that after 12 continuous weeks on assignment at a client, various rights and benefits afforded to permanent employees at the client will also be afforded to the PAYE contractor.
Benefits include may holiday entitlements as well as pension.
While any cases could be subject to different treatment and covering different periods of time, the latest briefing from HMRC states: “HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour”.
IR35 applies to any contractor seeking to operate through their PSC (sometimes referred to as an umbrella company). It is not for an umbrella company to confirm whether a contractor is inside or outside IR35 – this rests with the end-client. Any claims to the contrary should be scrutinised
Working under a “services agreement” alone does not automatically exempt a contractor from IR35 as it depends on the facts of each case and whether the role is deemed inside or outside.
No, shaping or changing wording in a contract alone does not ensure a contractor will be working outside IR35. Legally, it will be up to the relevant end-client to determine whether a role falls inside or outside IR35. The end-client will make this determination off the back of several factors including work practices and what you do on a day-to-day basis.
If the working practices of your role change, it may be outside IR35.
Your contract and the way you operate will change to working through the PAYE contract model from a set cut-off date confirmed by the client. We will work closely with you and the end-client to ensure a smooth transition ahead of time.
No, minimum rates have no correlation with IR35 and do not exempt you or end-clients from having to comply with this legislation. Payrates are not a factor that will determine where the role is deemed inside or outside IR35.
No, tenure has no correlation with IR35 and does not exempt you or clients from having to comply with this legislation.
No, as it is the role itself that is deemed inside or outside IR35.
In practice, this could mean for example that two days a week you provide your services through your PSC to a client working independently on a role deemed outside IR35. For the remaining three days of the week you might be working on a role deemed inside IR35 for which you will be subject to PAYE.
Some clients have decided to opt for a policy change. This means that they no longer accept contractors who are operating under a PSC regardless of the working practises of the assignment. If a determination assessment is conducted, then this is done on a role-by-role basis and takes into account the working practises of each one.
HMRC has introduced a Client-Led Disagreement Process which is designed to give contractors the opportunity to review the basis of the decision and raise a dispute if deemed necessary.
If you disagree with an IR35 SDS, you must contact your client who has 45 days to respond to your dispute with their reasons for making the decision. During this time, the original SDS will still be applicable and therefore also any subsequent change in your engagement model.
As each individual contractors’ financial situation will vary, we recommend you speak with your accountant or qualified advisor who should be able to run you through different scenarios involving any subsequent decision on the closure of your PSC.
From 6 April 2021, the reforms will apply to medium and large-sized private sector clients. The rules apply to all public sector clients and private sector companies that meet two or more of the following conditions:
In addition, if the client does not have a UK entity then it is exempt from the legislative reform.
For further information and to find out how we can help you in your individual situation, please contact your Aston Carter representative.