IR35 – changes to off-payroll rules in the private sector are causing concern

In less than a year off-payroll working rules from the public sector will be rolled out to medium and large sized private sector organisations.

This means that from April 2020, if your client is a medium or large sized business, the responsibility for determining your IR35 status will shift from you to your client. Then, should your contract fall inside IR35, your client (or your agent) will deduct tax and NI for you, paying the net amount directly to your company.

‘More pressure should be put on the government about this. I don’t think they’ve considered the impact, and perhaps they should start looking at us as a considerable asset to Britain’s future growth, rather than viewing us as leeches on the tax payer, which couldn’t be further from the truth. We pay more tax than people think. We contribute to society in different ways, whether that’s through the freedom of donating to charity via the company – or helping businesses get out of sticky situations as their staffing requirements change. We don’t get paid for holidays. We don’t take sick pay. We don’t take time off work unless it’s dire or we choose to. We prop up the economy.’

– Contractor survey response

IR35 currently seems to be producing more anxiety and uncertainty than Brexit. 28% of our surveyed contractors expect to be affected by these changes. Even with a year to go until the changes are introduced, 11% are considering returning to permanent employment.

Will you be affected by the introduction of off-payroll rules to the private sector?

HMRC has stated that at least two-thirds of those working via their own personal company are legitimately outside IR35. In many industries the proportion outside IR35 will be much greater – for example, the general view from the IT industry is that over 80% of engagements will continue to fall outside IR35.

‘I’m not concerned. There will always be a market for interim contract resource and everyone will adapt to the new rules.’

– Contractor survey response

It’s important to remember that IR35 legislation itself remains unchanged – these changes are purely about improving compliance. If you (and your client) are confident about your IR35 status, then you shouldn’t be impacted. If you’re unsure, now’s a great time to read our IR35 guides and download our free book and make sure your working practices are up to scratch.

Contractors are concerned about how the process will be managed and as such whether they will be penalised unnecessarily. 56% say they will trust current clients to get it right.

That leaves 44% who wouldn’t, which might explain why 23% will actively seek our clients with a track record of getting it right. 4% of contractors felt their current clients were scared by IR35 and doubted they’d be able to get it right at all.

Will you change the type of clients you work for after April 2020?

Many contractors don’t feel they can be proactive just yet – 45% of contractors who will be affected say it’s too soon to discuss things with their client. Of those that have had discussions, 50% said their contracts were already compliant. But 25% expect the terms of the contract to change, and
25% say they will be looking for work elsewhere.

‘I understand the logistics of it and know quite a few contractors operating in the public sector with it. Personally, it does not bother me massively, rather just something I need to consider when agreeing my daily rate with contracts that are within IR35.’

– Contractor survey response

Have you started to discuss the changes with your current client?

The financial impact of being caught inside IR35 can be significant, so it’s worth ensuring that you’re clearly operating outside of the legislation wherever possible in both your working practices and your contracts. By having an open and upfront conversation with your agent or end-client, you can ensure you’re always working to the best-suited contract. Consider engaging your client and agent sooner rather than later to confirm the IR35 status of your current engagement. Here are some top tips to help you facilitate those conversations.

If you’re outside IR35, you need to ensure your working practices reflect this, particularly around supervision, direction and control (and make sure your client is aware of what this means in practice).

Whether your contracts are always inside IR35, always outside or a bit of both – we’ve created an intuitive experience for all our clients. With our software, it’s easy to manage and switch between contracts that are inside or outside of IR35. So, contractors have the flexibility to take on any contract that suits them, while continuing to reap the benefits of being the owner of their own limited company. Find out how we’re supporting our clients with IR35 here.

The State of the Nation 2019

2019 is set to be another year of monumental change and uncertainty. Politics, the economy, society and technology are all continuing to change at lightning speed. That’s why, in January, we conducted a survey to find out how contractors are preparing for the future. Our 2019 report brings together our thoughts on the current mood of contractors across the nation, leveraging data from our expert clients and comment from our in-house specialists, to provide a close-up look at what contractors are talking and worry about for the coming year.

Download the free full report in our eBook library.