It seems in the contracting world there are a whole lot of misconceptions around the private sector IR35 reform. Speaking from experience as an Employment Status Specialist operating as part of Larsen Howie’s IR35 consultancy team, we’re seeing more and more questions – and concern - as April approaches.
The most pressing question for contractors on the run-up to the reform is “am I inside IR35?" Unfortunately, there’s no one concrete answer to this; IR35 is lost and won on a case by case basis. However, some expert advice from the other side of the fence – i.e. looking at the reality of IR35 status through an assessor’s eyes - might help to clear things up a little.
There’s often more to an initial inside determination
When conducting contract or working practice reviews, it’s decidedly rare that a contractor is found to be genuinely inside the off-payroll rules. “Around 95% of contractors we see – from all industries, and from an ever-increasing pool, might I add – are truly self-employed and easily fall outside of IR35,” says Matt Tyler, IR35 Consultancy Manager at Larsen Howie.
In our experience, this figure is not simply from the first outcome of the review, however – often, status assessments initially indicate that the contractor is operating inside IR35. It’s important not to get too bogged down in this first determination.
An important part of assessing IR35 status is about initiating a conversation with contractors, which is usually the best way to find the reality behind how a contractor truly provides their services. Speaking broadly, a misunderstanding about how IR35 applies to certain aspects of their contract or working practices, or even miseducation about the rules themselves, is to answer for these failed status tests. The majority of the time, subject to discussion, it is perfectly safe for end clients to continue working with these contractors.
“It’s knowing this ratio and seeing the IR35 risk blown so out of proportion that makes the widespread PSC bans so disappointing,” he says. “It also renders companies risking their contractors moving to competitors, getting fined for essential projects not being delivered, or long-term reputational damage that puts talent off completely pointless.”
Blanket PSC bans are counter-productive
It’s in the end clients’ best interests to ensure that your employment status is assessed fairly, mostly because contractors are amongst a businesses' most valuable resources.
A good portion of winning this battle is making sure that each party in the labour supply chain knows what they are responsible for. Encouraging open lines of communication and dismissing the fear of addressing the IR35 reform are both crucial to getting the best possible outcome for everyone involved in the preparation process.
James Poyser, founder of offpayroll.org.uk, agrees wholeheartedly with this sentiment. “The businesses most successfully tackling IR35 are also providing extra information surrounding the off-payroll rules and offering reassurance to the contractors they work with,” he says. “The hallmark of businesses approaching IR35 correctly is excellent communication."
As IR35 status assessors, a good deal of our day-to-day work is creating a dialogue between parties in the contractual chain, and it’s undoubtedly the most effective way to determine a contractor’s employment status accurately.
Education, communication, and a level-headed approach are key when preparing for the IR35 reform
In conclusion, it’s important to remember that determinations on your status are not final – don’t panic if, on your very first review, you appear to be caught by the off-payroll rules.
Indicators of status, such as our SIFT (Status Indicator for Tax) tool, are open to discussion and subsequent change if necessary. It is often due solely to misconceptions that a contractor is indicated as being inside of IR35, and it’s evident to any experienced employment status assessor when this is the case. Once these misconceptions have been discussed and clarified, contractors are more often than not fall outside IR35.
If you're still found to be inside IR35 after further discussions, open a dialogue with your end client; at this point, it's clear that some changes to how you provide your services need to be made. After you and your end client have made the appropriate amends, a simple retest will usually see you on the right side of the legislation.
How Larsen Howie can help you get ready for the reform
If you’re unsure of your employment status, we’d always advise that you get an independent assessment carried out on your contract or working practices (preferably both to get a holistic view of how you provide your services).
Having a contract or working practices review carried out by an IR35 specialist assessor may take longer than an automated tool, but the results are more reliable and bespoke to your situation. In addition to this, you have direct access to the assessor that completed your report, making it easy to get additional guidance, a more in-depth explanation of your result, or have any questions relating to your specific situation answered.
Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer IR35 investigation insurance with representation from Andy Vessey should it go to tribunal, as well as training and consultation for businesses that wish to continue working with their invaluable contractor workforce.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news, and contractor guides.