4 things you need to know about the upcoming IR35 changes
Since the announcement of a reform to the taxation of personal service companies (PSCs) in 2018, we’ve been following the legislative changes. We’ve kept our clients and contractors informed about how the reform will affect them and how they can prepare. Now, with the changes due to take place in a few weeks, we’re covering four things you need to know about IR35 to get you ready.
What to do if your contract ends after April 2021
If you’ve already started a contract, but it ends after the reform, a Status Determination Statement (SDS) will need to be submitted on your behalf. The private sector changes mean that the responsibility for determining IR35 status has shifted from the contractor to the end-client. The end-client must therefore provide you with an SDS in which they’ll state whether you are deemed inside or outside IR35, along with a comprehensive reason for reaching this decision.
HMRC has decided that end-clients are best positioned to decide the status of the worker, so it’s important that the person who is completing the SDS is qualified to do so and considers each of their answers carefully. When HMRC review an IR35 investigation, part of their assessment is focused on whether the end-client has taken ‘reasonable care’ and if they haven’t, this can lead to an incorrect IR35 status.
If you haven’t already, you can work out how much tax you will need to pay if you’re deemed an employee, and therefore inside IR35, using an IR35 calculator.
Why CEST might not be the best
HMRC introduced its Check Employment Status for Tax (CEST) tool to help employers, agencies and contractors determine where they fall in regard to IR35. Last year, we spoke to Andy Vessey - Head of Tax at Kingsbridge - to hear his take on the reform. Has raised the point that CEST may not work in favour of contractors. HMRC has since revealed that their tool has failed to reach a conclusion for one in five cases.
Andy is not the only person to speak out against the tax tool. In fact, several MPs have criticised CEST for enabling blanket assessments and failing to be aligned with the IR35 changes themselves. All criticisms stem from the understanding that it is impossible to create a tool that can provide an answer to every case, especially when you consider the complexity of the new legislation. Contractors who receive a “no response” through the tool are rightly worried that the end-client will present an ‘inside IR35’ status. If this does happen, you need to be aware of the Status Disagreement Process.
The Status Disagreement Process
The reform will only apply to medium and large businesses, meaning that the smallest 1.5 million businesses which engage with off-payroll workers will not have to take any action. Those medium and large businesses that are impacted will need to have a disagreement process in place to allow contractors to raise an objection to the SDS.
No clear process has been outlined by HMRC, but there are guidelines for how end-clients should respond. End-clients should pass the SDS down the contractual chain to the contractor and Quanta (the fee payer). At the same time end-clients should be informing both how may days they have to raise a dispute and submit their appeal. Regardless of how many days the contractor has been given to appeal, the end-client has 45 days to respond to the contractor’s disagreement, and within that timeframe, they may apply the rules that align with their original decision in the SDS. If you have received IR35 status that you disagree with reach out to the Quanta IR35 team for assistance with writing your appeal letter.
IR35 will not be retrospective
The legislative reform was planned for April 2020, but Covid-19’s upheaval caused policymakers to delay the changes until the following tax year. Although the reform has been delayed by a year, HMRC has stated they will not target individuals for backdated tax payments. This also means that if a business declares that a contractor is now inside IR35, this will not trigger an investigation into previous years. HMRC has assured that the reform is not designed to delve into historic cases of tax, but rather to make sure that businesses are complying with IR35 rules.
Quanta are here to help you prepare
Quanta are making IR35 easier and we have an in-house IR35 specialist to help our contractors understand how the reform will impact them. You can also access our IR35 hub which has plenty of helpful resources, including blogs, a webinar and our IR35 Contractor Guide.
If you’re feeling on top of the IR35 reform then why not look at finding your next contractor job? Browse our current vacancies in life sciences, renewable energy, and data centres & IT.