According to IPSE’s latest Freelancer Confidence Index, 59% of contractors are wary of the economic conditions ahead – including significant concerns over application changes to IR35 in the public (off-payroll working rules) and, at a later date potentially, private sector. But this needn’t be the case. With a firm understanding of IR35, you can hold open conversations and negotiate your contracts to ensure you’re getting what’s best for you.
Over the course of our IR35 series, we’ve evaluated the rash reactions of the public sector to April’s reforms. Now, as the dust begins to settle, the public sector is on the lookout to retain their access to the wider talent market. The challenge lies in ensuring they’re making accurate and well-informed decisions when it comes to assessing the employment status of independent professionals.
‘Now the responsibility for deciding a contractor’s status often lies with public sector purchasing departments, they need to be making educated decisions about IR35. Unfortunately, they’re arguably not in the best place to do that. Most will have limited visibility of how contractors work and won’t have a full understanding of IR35. Many will still be taking a risk-averse stance and automatically placing contractors inside IR35. Independent professionals likely know more about IR35 than the majority of their clients. They need to be pushing back against inaccurate decisions and helping to educate.’
– James Poyser – CEO of inniAccounts
By having an open and upfront conversation with your agent or end-client, you can help them to make informed IR35 decisions. Understanding how to discuss and appropriately test your contracts lets you ensure you’re being correctly assessed, and working to the best-suited contract possible.
By ensuring you’re capable of holding these conversations, not only do you improve your access and situation in public sector contracts, you’re also future-proofing yourself against any further changes. The public sector changes are currently being heralded as a success by HMRC (though most in the contracting world aren’t so quick to agree). This, will provide the Treasury with a compelling argument to expand the changes to the private sector; where an even higher tax yield is expected. Ensuring you’re capable of navigating your IR35 status is a competitive edge well worth having.
So you’ve found a project, you’ve had the interview, and you’re ready to discuss your potential new contract, where do you begin?
1. Get to know IR35
First and foremost, to be able to successfully and confidently hold these conversations, you need to have an awareness and understanding of IR35. Thankfully, while the way IR35 is applied has changed in the public sector, the rules that determine its application have not. Key indicators of IR35 such as supervision, direction and control in your contracts, rights to substitution, mutuality of obligations and right to immediate dismissal all remain unchanged. All these elements will form an integral part of your contract and working practices. With a firm understanding of how your employment status is determined, you should be able to enter most negotiations with an idea of whether the contract is likely to be inside IR35 or not.
2. Independently assess your IR35 status
In a recent survey, 51% of the contributing contractors felt their clients did not have access to the tools or expertise necessary to make a correct IR35 determination.
‘IR35 assessments should be a detailed and informed process that involves all applicable parties. An independent specialist can help to ensure your public sector engager is making accurate decisions.’
– James Poyser – CEO of inniAccounts
By having a firm understanding of IR35, you’ll likely already have an idea of when a contract should be outside/inside IR35. If your agency or client disagrees or remains uncertain, you can always suggest the engagement of an independent specialist to assess your contract’s IR35 status; providing peace of mind and certainty for all parties. Specialists, have carried out several thousand assessments on behalf of numerous public sector bodies and agencies. They recently reported that 89% of public sector contractors have ‘passed’ their rigorous IR35 assessment (deeming them outside IR35).
HMRC have supplied an online tool to help public bodies determine the IR35 status of independent professionals. It’s worth noting however that this tool has been widely criticised as ‘not fit for purpose’. 43% of APSCO’s members feel that ‘the HMRC tool does not generally produce reasonable status decisions in light of the factual realities of placements’. Industry experts have also confirmed that it often fails to align with previous case law. Alongside this tool, we’d recommend contractors push for the use of an independent specialist or at least a more accurate tool such as Contractor Calculator’s IR35 status test.
3. Negotiate your contracts
When it comes to negotiating contracts, remember that you can influence both your rate and your contractual terms.
‘When faced with an appealing contract it can be tempting to jump straight in. But, it’s ultimately up to you to ensure contracts are working in your best interests. Negotiation skills are crucial to ensuring the contract meets your needs as a contractor. If you don’t agree with certain terms you’ll need to have them removed or amended. This is especially true when it comes to managing your IR35 status with clients who might already be erring on the side of caution.’
– Matt Poyser – Co-founder of inniAccounts & Operations Director
Should you receive a contract that would place you inside IR35, you may want to consider how the terms of the contract and working practices could be changed, and engage with the public sector authority to change or review them as appropriate. Should you find the terms suit the project or your client proves unwilling to budge on the matter, you can always try to negotiate for an increase in your rate. Our handy IR35 calculator can help you to see how an inside status would impact your take-home pay.
4. Evaluate what it means to you
So, the project looks ideal; it’s the perfect time length and exactly the type of thing you’d like to be working on. The catch? The contract would place you inside IR35, and no amount of negotiation over your terms or independent assessment would see that changed. You’ll now need to ask yourself whether this is a deal breaker for you. There’s no getting around that working inside IR35 will impact your take-home pay, but for many contractors, other incentives can outweigh that. 74% of contractors state that the best part of contracting is the greater variety of work, with 64% finding they now got to focus on work they find enjoyable.
Before turning down a contract solely on the reasoning of IR35 status, it’s worth taking the time to consider what the project means for you and whether the experience, work, contacts and general level of enjoyment gained might be worth proceeding. Especially as managing your contracts inside IR35 can be simple and straight-forward with a specialist accountant.
Having the conversation
With the public sector application changes here to stay and the likelihood they could soon be pushed out to the private sector, contractors need to ensure they’re able to discuss IR35 and negotiate their contracts accordingly. Independent professionals will likely know far more about IR35 than their end-clients, by engaging in open conversations they can help to ensure accurate and well-informed decisions are being made about their contract status.
By having a firm understanding of IR35, contractors can confidently enter discussions and negotiate to ensure contracts are in their best interests, best suited to the project at hand while helping to educate clients who are likely still finding IR35 a very new element. Independent assessors and thorough review of contractual terms can ensure both parties have peace of mind over their tax liabilities. For many contractors, however, IR35 status may come secondary to other aspects of the contract – it’s always worth assessing and negotiating each contract individually to ensure you’re getting the best option for you.
Next week we’ll take a look at how the contracting market is changing as a whole while also examining how we at inniAccounts can help you (through our software and expert knowledge) with any contracts inside IR35.