IR35 April 2021 – essential FAQs

IR35 changes are just around the corner. Be ready with our essential FAQs.

What is changing?

From April 2021, the rules surrounding IR35 in the Private sector will be brought in line with those currently in the Public sector. Therefore it will be the end-hirer’s final decision as to whether you’re inside or outside of IR35, and they will be financially responsible should they get your status wrong.

What isn’t changing?

The rules used to determine a contractor’s IR35 status, so in theory if you are legitimately contracting outside of IR35 come April 2021, you’ll still be outside post the changes.

If your contract is within the Public sector come April 2021, your end-hirer is already responsible for determining your IR35 status, therefore this will not change.

If you’re unsure about your current contract, or are considering a new contract between now and April 2021, be sure to speak directly with your SG accountant, who will be able to review your contract and working practice’s IR35 status.

What’s the expected impact on contractors?

Our experience from the changes within the Public sector have shown that some end-hirers have taken a risk averse stance, and placed a blanket ‘inside’ IR35 status across all contractors, so as to remove themselves from the liability for an incorrect status.

This may result in a number of contractors having to temporarily work on a PAYE basis, and losing all associated tax benefits of working through a Limited Company.

How will your status be assessed?

Your client or end-hirer must practice ‘reasonable care’ when determining your status. To do this they must use the following:

Control: What level of control does the end-hirer / client have on your contract and working practices? If the answer is little to none, then your contract and working practices are ‘outside’ of IR35.

Substitution: Are you able to send a replacement contractor during the contract? If so then this would strongly suggest that you’re working outside of IR35.

Mutuality of Obligation: Is there an expectation or obligation to complete extra work that’s outside of your contract with the end-hirer / client? If not then this suggests you’re outside of IR35.

Whilst some clients are placing blanket assessments on contractors, others are using HMRC’s CEST tool (Check Employment Status for Tax) whereby they answer a number of questions based on a contractor’s engagement and then the tool tells them whether you’re inside or outside.

What’s wrong with CEST?

As the tool was created by HMRC, many argue it’s weighted in their favour. It’s also widely considered to be flawed, with HMRC investigations showing that the tool doesn’t give the correct answer. Whilst this is the case, the tool’s final decision is what client’s will base your status on. HMRC will stand by their CEST tool’s decision, so long as the correct facts have been inputted into CEST.

What happens if you don’t agree with your client’s decision?

If your client has either blanket assessed your contract or arrived at an incorrect IR35 status, you’re able to submit a ‘client-led disagreement’. By doing so you provide your evidence to your client, who then has 45 days to respond to your appeal.

If you find yourself in this position, speak to your SG accountant, who will be able to assist you at every stage of the ‘client-led disagreement’.

What can you do if your client refuses to reconsider an incorrect assessment?

You have four options:

Option one: leave and contract elsewhere.

Option two: Accept a permanent role, but ensure to negotiate a higher rate to compensate for your losses.

Option three: Contract through an Umbrella company temporarily whilst your case is being disputed. SG allows you to move freely between SG Accounting and SG Umbrella, whenever your contract requires you to. Simply speak to your accountant to find out more.

Option four: Contract through your Limited Company. You’ll still pay tax and National Insurance Contributions, but there are some other financial benefits. Your SG accountant will be able to advise these, based on your personal and professional circumstances.

What happens if you were contracting outside IR35, then are found to be inside for the same contract?

You must exercise caution when contracting for the same client, when a previous contract was considered outside, but now is classed as inside. HMRC have stated that they have no intentions to open retrospective enquiries into prior contracts, but recent behaviour may suggest otherwise. It’s advised to speak to your SG personal accountant of your plans, and to challenge HMRC’s decision with their support.