Do you sit outside IR35?

  • List the ways in which IR35 is affecting those who are contractors
  • Describe what contractors can do to prepare for IR35
  • Describe the ways in which contractor can sit outside IR35
Do you sit outside IR35?

IR35 - the controversial tax legislation designed to prevent ‘disguised employment’ among limited company contractors - faces further reform on 6 April 2020.

This time, changes will be enforced in the private sector and will see medium and large companies engaging independent workers become responsible for setting the tax status of these individuals.

As part of this reform, the tax liability will also transfer from the contractor to the fee-paying party in the supply chain, which is typically the recruiter or the company that directly engages the individual.

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You might already be aware that similar measures were introduced in the public sector in 2017, affecting all public sector bodies.

This means that if you are an independent financial adviser and work through your own limited company and provide services to medium or large firms in the private sector, from April next year you will no longer be able to decide if your contract resembles employment or self-employment and therefore your tax status.

The power to do so will be passed over to your client. The liability will also shift to either your client or the agency you work through.

In the financial services world, there have been reports that a handful of high-profile companies are considering offering the contractors they engage no option but to work as permanent employees or face having their contract cancelled. In effect, by not engaging limited company contractors, these companies would sidestep their responsibility to administer the rules.

More recently, new reports have emerged stating that several other well-known financial services firms are in the process of designing workarounds to incoming IR35 reform, which again would mean these businesses do not need to administer the tax status of contractors from April 2020 onwards.

This news has been met with criticism by many sector experts - Qdos included - given the likelihood is that by offering contractors ultimatums, these companies will likely lose out on the unrivalled flexibility and skills that independent workers offer.

I should, however, point out, that at this stage there only seems to be a few private sector firms apparently planning this course of action.

Qdos is working with more than 50 companies, helping them prepare for IR35 reform to ensure they are in a position to make fair and well-informed decisions with regards to contractors’ tax status.

And, compared to reform in the public sector, which resulted in thousands of contractors being wrongly placed inside IR35 and taxed at a rate similar to an employee, the early signs suggest that plenty of private sector firms are taking sensible steps to manage the incoming changes.

Nonetheless, as an independent financial adviser, for example, it is vital that you have an understanding of the IR35 legislation, the changes that are set to arrive next year and, above all else, know how to safeguard your IR35 status in the run-up to reform - because while you will ultimately lose the right to decide your own tax status from 6 April 2020, that is not to say you are completely powerless.