4 tips for contracting outside IR35

You needn’t be concerned about the outlook for contracting. 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.

As the IR35 reform dust has settled, the public sector is on the lookout to retain their access to the wider talent market by hiring outside IR35 – and we predict the same for the private sector April 2020 too. The challenge lies in ensuring your client is making accurate and well-informed decisions when it comes to assessing the employment status of independent professionals.

Just remember, the responsibility for deciding a contractor’s status often lies with 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.

There’s a good chance you’re likely know more about IR35 than the majority of your clients! You need to be pushing back against inaccurate decisions and helping to educate them.

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.

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 is changing, 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 client is making accurate decisions.

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 clients and agencies. They recently reported that 89% of public sector contractors have ‘passed’ their rigorous IR35 assessment (deeming them outside IR35) – meaning it could well be worth engaging a specialist to help.

HMRC’s Employment Status Service (ESS) tool
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.

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 client 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 – or simply walk away and find a client who better values your skills and ethos.

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 – you might take some comfort in reminding yourself 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. But that alone might not redress the balance!

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 changes being rolled out to the private sector in April 2020, 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.

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