IR35 Reforms To Impact Contractors & Businesses

The Government confirmed back in February that changes to IR35 will come into effect on April 6.

Despite this milestone, I worry that many people still don't understand how it will affect them - either as a contractor or as a business owner employing contracted workers.

Although Chancellor Rishi Sunak made no mention of the widespread reforms in this week's Budget, they are still likely to be introduced as planned in a month's time, so it's important to get to grips with the changes if you haven't already.

There were widespread calls for the policy changes to be pushed back to a later date as businesses and the self-employed grapple with the economic and employment challenges presented by the past 12 months. 

And business groups, leaders and contractors also expressed their concerns about how private-sector firms will cope with the additional burden of determining contractors' status.

One danger is that many large businesses will choose to introduce a 'blanket ban' on working with contractors to avoid the added burden and liability. The timing is far from ideal.

IR35 – what you need to know by April 6

Previously, only those working for public sector organisations were affected by the IR35 rule, but from April 6, HMRC is extending it to medium and large businesses, who for the first time must determine if a contract falls within IR35.

Third parties, such as agencies, placing staff into medium or large companies, are also liable and both they and the 'end client' must ensure 'Status Determination Statements' are issued to the worker.

Small businesses are still exempt from the IR35 rules. If you're a contractor considering working for a company, you may want to check it is classed as a small business, with turnover up to £10.2 million, a balance sheet total of no more than £5.1 million and with no more than 50 employees.

How to stay outside IR35 rules

To stay outside IR35 rules, self-employed contract workers are usually paid on a project-by-project basis, which is usually when work reaches a specific milestone or comes to an end.

Having a website, an office and employees all go in favour of showing that you're operating as a self-employed contractor and not working as an employee.

Contractors must have control over how they complete their work for a contract to fall outside of IR35. If a client provides you with equipment to complete a contract, this could result in HMRC viewing you as an employee. Whenever you're at the pre-agreement stages of a contract, always make it clear that you'll be using your own equipment, to remain outside of IR35.

Have multiple clients

Remember to have at least more than one client because if HMRC deem that you're working exclusively for one client over a prolonged period of time, they could view this as an employee-employer relationship, meaning you fall within IR35.

If it's deemed that IR35 does apply to your contract, you'll be responsible for paying the outstanding extra income tax and National Insurance contributions. Bear in mind that HMRC can go back at least six years to determine whether or not IR35 applies to any previous work you've carried out and can request you to pay any necessary additional penalties and interest.

You can take the HMRC IR35 test to assess your current work practices.

If you would like further advice on IR35 and minimising your tax costs please contact me on 01403 337490 or email info@giltinan-kennedy.co.uk