Welcome to Contractor Corner, the series written specifically by Qdos Contractor for accountants with clients who are contractors.
No more delays: IR35 reform is set for 2021
On 1 July, MPs voted against an amendment that proposed a 2023/2024 IR35 reform implementation date. That means that the reform to the off-payroll working rules that we expected originally in April 2020 will now be introduced on 6 April 2021.
This means that when the reform is enacted it will no longer be the contractor’s responsibility to determine their own IR35 status. This is, instead, a responsibility that will sit with the end client in the contractual chain.
Who said what?
Let’s take a look at the discussion surrounding the Finance Bill on the 1 July. In total, 317 Conservative MPs rejected the proposed 2023/2024 reform implementation date. Of the 254 MPs who voted for further delays to IR35 reform, this included 180 Labour MPs, the remainder of MPs represented other political parties.
Opposition to the 2021 reform date
The movement faced opposition by the likes of David Davis and Sir Ed Davey, to name but a few. Such opposition focused upon the key issues that lie within the core of the IR35 legislation itself as well as noted grievances with the timeliness of the reform in relation to the current and future challenges facing the economy.
The Financial Secretary to the Treasury, Jesse Norman, managed to dismiss these concerns in a matter of minutes. After a heated two-hour debate he made his stance against further delays to the implementation of the off-payroll working rules clear.
Norman’s argument for a 2021 reform date focused on the cost of non-compliance. He reminded MPs of the foreseen costs of non-compliance with IR35 upon the Treasury. This sitting at well over £1 billion every year seemed enough to place IR35 reform soundly within the Finance Bill and set a 2021 reform date in stone.
What does this mean for my clients?
You may find yourself asking, what now? The reform undoubtedly puts contractors in an interesting position.
It is important to remember that this is not an unprecedented event. Back in 2017 we saw the reform to the public sector. As such, the best approach a contractor can take to the private sector reform would be to get involved as much as possible in the IR35 process.
Open up discussions with other contractors or members of your contractual chain and educate yourself as best as you can with the wealth of free online resources that are at your fingertips.
As referenced earlier, a reform to the off-payroll working rules means that after 6 April 2021 contractors will no longer be responsible for determining their own IR35 status in any engagements with medium to large businesses.
With the countdown clock to an April 2021 reform date solidly ticking away, contractors should now turn their thoughts to how best to prepare for the inevitable changes in IR35-related responsibilities.
How do I prepare for IR35 reform as a contractor?
With IR35 reform set in stone for a 2021 implementation, as a contractor you should be considering how best to prepare for the changes we will see to the structure of IR35 responsibilities.
As of 6 April 2021, when you are engaged by medium and large businesses it will no longer be your responsibility as a contractor to determine your IR35 status.
Both the responsibility for determining status and the liability for IR35 will be transferred to other members within the contractual chain. This is a transferral that we have already seen take place within the public sector back in 2017.
Let’s take a look at the things you can do as a contractor to prepare for the reform.
Communication is vital
Talk to other contractors: Remember, you are far from being alone. Thousands of other contractors are all in the exact same boat as you. With reports of some companies taking out blanket IR35 determinations on their contractors, some of you are unsurprisingly worried that your clients may take the same approach.
By speaking to your peers, you are starting an important conversation around determining IR35 status. A vital part of this conversation includes encouraging your client to put in place a fair IR35 determination process.
Work together with your contractual chain: While many contractors may have already heard from their client or agency, it is important to note that you should feel able to start the conversation about your IR35 status.
If the conversation around IR35 is yet to have been started, you should seek to get the ball rolling as soon as possible. After all, April 2021 will be here before you know it. Take this time to prepare by encouraging your contractual chain to take their new obligations seriously. Reinforce the importance of the implementation of rigorous processes that deal with IR35 holistically but also ensure your client or agency is aware of your needs to be kept in the loop.
Strengthen your current stance
Despite the fact that after April 2021 it will no longer be your responsibility to determine your IR35 status, this does not mean that you cannot help to ensure you receive a fair assessment.
By collecting evidence to the fact that you are outside of IR35 currently for an engagement that will continue until after April 2021, you will be able to make it more difficult for your client to determine you as inside of IR35 and have evidence to back up any dispute.
Get a Confirmation of Arrangements
A Confirmation of Arrangements (CoA) is, in essence, a document that shows that the end client is in agreement with your IR35 status. It seeks to establish, using a series of questions, how you operate as part of the engagement in reality.
With a CoA already in place, it would make it increasingly difficult for your client to alter your IR35 status when it becomes their responsibility after April 6th 2021.
Have your IR35 status reviewed: On top of remaining aware of the key IR35 status tests such as substitution, mutuality of obligation, and control, you should also seek to have your engagements reviewed for their IR35 status by seeking the advice of an independent third-party.
It is also prudent to be aware that contractors will still be liable for status prior to the reform’s implementation next year and for any engagements with small companies. It is therefore important to maintain evidence of your due diligence in determining your status until reform should HMRC open an enquiry into your accounts.
Demonstrate that you run a genuine business: In addition to the above, by gathering evidence that you are running a genuine business rather than instead being a disguised employee, you can help to demonstrate your status further.
How can I help prove I am running a genuine business?
There are a number of ways you can evidence that your business is genuine.
- Having a designated business website and business email.
- Having adequate business insurances in place.
- Having stationery for your business, an example of this might be letterheaded paper or invoices.
While all of these tips will help prepare you for the 2021 reform date, remember that the single best thing you can do to prepare is to continue educating yourself.
However you get your contracting news, whether it be through the ICPA, Qdos, LinkedIn or just by word of mouth. Continue learning and connecting with other contractors and soon the reform might not feel quite so daunting.
• Qdos Contractor has been providing IR35 advice and services for over 20 years for contractors and the organisations which engage them, and provide one of the most trusted opinions on IR35 status. Visit www.qdoscontractor.com for more information.