The much discussed changes to IR35 are imminent. From April 6th 2020, the onus of deciding whether your contract role falls inside or outside IR35 will fall on the client.
Understandably, these changes aren’t particularly popular amongst the contractors we work with. But it’s important to remember these changes do not mean the end of contracting as we know it.
The market is changing, but the demand for contractors will always exist. We believe the best way to deal with change is to make the right preparations. If you’re a contractor whose role may fall inside IR35 after April 6th, here’s how you can prepare.
Find out if your role is inside or outside IR35
As a part of the new legislation, the end hirer is responsible for determining whether your role is ‘inside’ or ‘outside’ of IR35.
Unfortunately, a number of large organisations are planning to move all their contract roles inside of IR35, regardless of the relationship between client and contractor.
Whatever your situation, we recommend you undertake your own IR35 assessment.
The easiest way to do this is to use HMRC CEST Tool. The tool will ask you a series of questions about your current role and the relationship you have with the business.
To get an accurate assessment of your current role, ensure you answer all of the questions honestly. The tool will provide a Status Determination Statement and tell you definitively whether your role is considered ‘inside’ or ‘outside’ of IR35.
The result from HMRC’s CEST Tool is, currently, the only result HMRC will accept.
What should you do if your role is now considered ‘inside IR35’?
If you’re told that your role is now considered inside IR35, we've identified four different approaches you may wish to take.
Accept the assessment and restructure your taxes
If you’re happy to accept working inside IR35, you’ll need to ensure your taxes and national insurance contributions are being paid each month.
The easiest way to do this is through a payroll company. If you are supplying services to us then we have set up a new company, Vector Pay Ltd to manage this for you if required.
Each month your gross earnings are paid to the payroll company, who deduct your tax and NI contributions, submit the correct report and deductions to HMRC and then send the remaining money on to you.
Of course, you can manage your own tax and NI contributions. However, the majority of our contractors working inside IR35 currently find these types of services much more convenient and cost effective.
Appeal the assessment
You can appeal the assessment by writing to the client and requesting an explanation of the result. The client will then have 45 days to provide you with the reasons why they believe your role is inside IR35 or revaluate the situation.
If they don’t provide the explanation within 45 days, the tax burden will be passed back to them.
Unfortunately, we don’t expect this type of appeal to necessarily lead to a change of status.
Consider converting to employed status
With the IR35 changes coming into effect, some employers are open to converting temporary contracts into permanent positions.
For the contractor, a permanent role within the organisation you already know offers job security in an uncertain market.
It’s worth remembering that terms surrounding ‘Permanent Employment’ have changed dramatically over the last decade. It’s not uncommon for permanent staff to move jobs every 2-3 years.
Permanent isn’t really as ‘permanent’ as it used to be.
Negotiate a higher day rate
Working inside IR35 may mean a reduction in take home pay for some contractors. To compensate for this, a good agency may be able to negotiate a higher day rate.
The ability to negotiate a higher rate depends on a number of factors:
- The demand for the specific skills
- The experience and efficiency of the contractor
- The company’s contractor policy
- The agency’s relationship with the client
The key to negotiating a better rate is to work with an agency that can assess your true value to an organisation. They also need to have a strong relationship with the client so they can be open and honest during the negotiations.
We’re here to help keep you contracting
With the right preparation, the changes to IR35 should not stop you enjoying the freedom and flexibility of contracting.
At Vector, our team is always available to give current and prospective contractors advice on any IR35 related concerns. Just drop us a message using our contact form and we’ll be happy to help.