The announcement in last month’s Budget that further IR35 changes will be introduced in 2020 was a development that independent workers, nor it seems the overwhelming majority of UK businesses, wanted to hear.
With medium and large engagers in the private sector to be handed the responsibility for setting status (and the IR35 liability if they get it wrong), contractors fear being incorrectly placed inside the rules.
Contractors have seen and experienced the public sector changes and simply do not believe the private sector is – or will be – better equipped to administer IR35 fairly. Partly because of this, experts have already started urging private sector companies to begin preparations, so they are ready well before April 2020.
After what happened – and continues to take place – in the public sector, contractors are entitled to fear the worst, with many seeming resigned to having their status set to ‘inside’ in the lead up to or upon the arrival of changes.
That said, contractors lacking faith in their engager can take a proactive approach to reform and lawfully play a role in contributing to an accurate IR35 decision.
COLLABORATE WITH CLIENTS
IR35 specialists are advising companies to communicate with contractors, more than anything to let them know they will be taking incoming changes seriously. Prior to the arrival of public sector reform, engagers by and large did little to involve contractors when preparing to set their status. This resulted in rushed, risk-averse and wrong decisions when reform landed.
But contractors in the private sector don’t have to wait for engagers to open up a dialogue. While it’s not their responsibility to do so, independent workers can make the first move and collaborate with clients on IR35.
RALLY FELLOW CONTRACTORS
With reform on the horizon, should a contractor feel their client is unprepared for incoming changes – whether that’s because they don’t hear from them or suspect they will make blanket determinations – individuals are recommended to speak with other freelancers working for that same client.
Together, contractors can approach their engager and highlight the importance of making well-informed IR35 decisions. Collectively, independent workers will have a stronger, louder voice and one that clients are more likely to listen to.
CONFIRM WORKING ARRANGEMENTS
One step on from an IR35 compliant contract – and considered as one of the most important pieces of evidence in an investigation – a Confirmation of Arrangements (CoA) letter demonstrates that each party in the chain is in total agreement of a contractor’s status.
It can be difficult for a contractor to obtain, given engagers will ultimately have to pay HMRC for any incorrect decisions, but a CoA document could be hugely important should the taxman come knocking. They’re taken seriously because they often reflect the true nature of a working arrangement, not just what was agreed initially.
CONSIDER AN IR35 CONTRACT REVIEW
With the taxman’s IR35 testing tool (CEST) deemed by most to be incapable of considering the specific and unique details of a working arrangement, individuals can have their contract professionally reviewed, irrespective of the fact they won’t be setting their own IR35 status.
Independent IR35 assessments are allowed, and offer considered and objective advice. Compared to CEST, contract reviews also tend to stand up in court. Contractors might also want to mention to their engager that – following a 14 month investigation – CEST gave the wrong answer almost half the time.
So, needless to say, a professional contract review could be vital in ensuring a contractor has their status set accurately.
When collaborating with engagers on IR35 status, contractors are urged to collect evidence that shows they are genuinely in business independently.
Key pointers towards a contractor being self-employed – such as their own company stationery, an office or a business website – will certainly strengthen any argument for operating outside IR35. Other ‘proof’ could be that a contractor has invested in their own equipment and has more than one client.
The term ‘evidence’ is a little misleading, given the above examples alone won’t usually set or overturn an IR35 decision. That said, any material that demonstrates a contractor works for themselves should be taken seriously.
Ultimately, contractors will not make IR35 decisions in the private sector from April 2020, but that isn’t to say that by taking these steps, they can’t formulate a strong and credible argument for sitting outside the rules.