- Are you a limited company contractor confused by IR35?
- Are you a client unclear on the incoming changes to IR35?
- Looking for advice on how to improve your IR35 position?
This blog will cover all of the above!
As you may be aware, IR35 legislation changes are coming in April 2020 and we will need to start preparing very soon. For now, IR35 status is still determined by the contractor, but in April, this responsibility will move to the employment agency and our medium to large private sector clients (Companies Act 2006 for the definition of a small company for guidance).
Remember, IR35 aims to distinguish between those working as a disguised employee and those operating as a genuine contractor. We hope that most of the contracts with clients we fill fall outside of IR35, however, we’ll need to work together with clients to determine this and ensure we both do the correct thing.
From April 2020 for any contract roles (existing or new), we would require all clients to use a tool, created by HMRC, which will help us to distinguish whether the contract is likely to fall inside or outside IR35. The CEST Tool (Check Employment Status for Tax) can be found here and will ask questions based what the working practices of the contractor will be, including things like their right of substitution. Once that determination has been made by you, it then needs to be passed down to us. You must be able to demonstrate that the determination was made with reasonable care, otherwise you may be liable to make the tax payments yourself. You can find out more about this process in APSCO’s Client Guidance document – please do ask us for a copy.
Other things clients need to consider is:
- What tools will be used to confirm the status determination of contractors, and who will be responsible for this?
- Will you engage an external body to assist with status determinations, or will you use an online tool other than the HMRC CEST tool?
- How can you ensure you are using ‘reasonable care’ in making the determination?
If you determine that a role may be ‘inside IR35’ one option for contractors is to come under our own payroll, where the correct taxes will be paid. There are other alternative off-payroll models available, such as using an umbrella company, however, we would advise that this is researched thoroughly beforehand, as some umbrella schemes out there may not be genuine PAYE models. From a contractor’s perspective being on our payroll is a seamless process and we don’t charge you a fee like umbrella companies.
Here are 5 useful tips for contractors to improve their own IR35 position:
1). Compile your evidence of business activity. We recommend that you have a contract review from a specialist, to review your working practices and ensure your contract satisfies the key IR35 factors. Remember to keep a record of everything and perhaps even a simple document that states why you consider yourself to be outside IR35.
2). Exercise your right of substitution. HMRC will always consider this as one of the most important factors. If you are able to provide a substitute in your place, this will demonstrate that you are a genuine business on your own account. It’s important to remember that whilst contractors must be able to supply a suitable substitute, employers should be able to accept the substitute (provided that the substitute has the right skills and requirements for the job). How contractors wish to arrange their substitutes is entirely up to them. ENI will help you. We have a large and established database of contractors who can be provided as substitutes and we are looking at additional ways of assisting. We want to make this as easy as possible for contractors.
3). Take out business insurance – this will demonstrate that you are in business on your own account. Using your own equipment and paying for your own training and expenses will also indicate that you are taking a financial risk (because a genuine business would be!)
4). Have your own company stationary. This may sound like a strange one, but any little thing you can do to show you are a genuine business will really help. Try getting your own business cards, letterheads or company website, for example.
5). Put a ‘confirmation of arrangements’ document in place. This will help to ensure you operate under compliant working practices. If your contract goes as far as stating that you are genuine, then this needs to be the case in reality (and this is what HMRC will look out for). A confirmation of arrangements letter will outline the true facts of the engagement.
If you are a current contractor or client of ours and have any questions please contact our IR35 expert Jemma. If you are a contractor looking for a new gig in the research, insight & analytics space or needing to hire talent please contact our dedicated recruiter Olly.