The most pertinent being the imminent and widely criticised IR35 legislation.

A recent survey of our clients showed that 93% of contractors were concerned about IR35 reforms and that 63% were not confident that their client understood IR35. This is a potentially perfect storm for HMRC so let me explain what the changes mean for you.

What is IR35?

IR35 is a piece of legislation intended to cover contractors supplying services through a Personal Service Company, doing substantially the same work as an employee which if applied would result in full PAYE and NI with no expenses, on the day rate. Typically, the contractor has been responsible for applying the rules. From April 2020 this moves to the end client to assess and commonly the agency to deduct the tax. 

What do the changes mean for you?
Contractors
For contractors, many financial intuitions have confirmed they will no longer engage PSC freelancers and a reduction in roles is evident.

You do have options
We have seen a substantial increase in requests for our help establishing small consultancies of contractors working together. The resulting business to business engagement if operated corrected can take you out of the scope of IR35. Similarly, we are seeing many contractors move to our contractor-owned umbrella, The Contractor Co-operative, which employs freelancers directly, thereby reducing risk.

As part of this it is important to consider the most practical way to close your Limited Company. Entrepreneurs' Relief should be explored. This would allow funds in the liquidated PSC to be distributed to relevant shareholders at a tax rate of 10%. Planning here is key.

Agencies

For agencies, the cost of inaccurate assessments is considerable. Ten contractors, £350 per day, for four years, raises a potential liability of over £1.4m
if you get it wrong. You will need to look at how the new legislation is best integrated into the procurement of contingent staff to limit risk. A big opportunity exists for those that get it right. We help many agencies looking to implement a strong IR35 framework which can be used as a marketing tool to show potential clients their low risk status.

End clients

For end clients, if you act now you will minimise risks and reap rewards. If HMRC find that an assignment is incorrectly determined as ‘outside' when they are in fact ‘inside', you could be liable to pay charges amounting to more than 50% of the total amount paid to each contractor. This will likely be backdated to cover the full length of the assignment from 6 April 2020, up to a maximum of four years. Consequently, in 2024, you could be liable to pay HMRC an additional 50% of your total contingent worker costs for the past four years, plus any fines and interest on overdue payments. Again, planning is crucial.

What to do if you get an IR35 enquiry?

There is a clear and strategic process to managing and defending IR35 investigations. Take advice in the first instance, but evidence and testimony will be key, so retain all information that supports your nature as a contractor.

For more information visit  www.wttconsulting.co.uk [1]