The postponement of the IR35 reform until April 2021 was welcome news for many limited company contractors. However, this 11th-hour delay has created some uncertainty for those who've already received an IR35 determination from their end client.
If this is something you’ve experienced and you’re left wondering what you should do next, we’re here to help.
What should I do if I was blanket-assessed as inside IR35 by my client?
A blanket assessment is when an IR35 determination is applied to all contractors of one end client without fair, individual reviews. HMRC has made their view of blanket assessments clear on the .gov website, though this hasn’t deterred end clients to date.
They state that “Your client must take reasonable care when making a decision about whether the off-payroll working rules apply. Applying a decision to a group of off-payroll workers with the same role, working practices and contractual terms may be permissible in some circumstances, but it is not right to rule all engagements to be within or outside of the rules irrespective of the contractual terms and actual working arrangements.”
If you have been blanket-assessed as inside IR35 prior to the reform delay, you have a few things to take into account. First and foremost, it’s important to discuss the matter with your client. Make it clear that, until April 2021, it’s still your responsibility to assess your IR35 status. You should then consider a professional assessment of your employment status and educate yourself on what the rules mean for you.
Matt Tyler, IR35 Consultancy Manager at Larsen Howie, reiterates this.
“If you've already had a determination from the client, you might find that client reluctant to overturn that decision on a whim, even if it isn't their decision for another year,” he says. “One of the best bargaining chips you can bring to the table is an independent third-party expert review of your contract and working practices.”
Can my client stop me from working outside IR35?
Whilst your client has no power to force you inside IR35 until the reform is in place, they can simply choose to not work with a limited company. While many clients are U-turning on their pre-delay decisions, given more time to refine their processes, some are still stipulating that they will only work with umbrella companies or via PAYE.
This is, unfortunately, their prerogative and that leaves contractors having to argue their case or find work elsewhere.
Is it risky to revert back to outside IR35 working?
If your client has previously determined you as inside IR35 and you now switch back to working outside, you could fall foul of an enquiry should HMRC find out about the initial inside determination. HMRC can get hold of your client's original status determination statement (often referred to as an SDS) and potentially use it against you.
If the initial determination given by your client was a generic blanket statement, there will likely be aspects of it that can be critiqued to help prove your genuine outside status. If, however, the determination was done on an individual basis, you may find it difficult to argue your stance without hard evidence to the contrary.
Matt Tyler recognises that the vast majority of contractors are indeed genuine. In fact, an inside determination is often the result of a simple misunderstanding of 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,” he says. “Our in-house status specialists often see that misconceptions are the initial reason why a contractor may be placed inside IR35. Contractors more often than not fall outside IR35 once these misconceptions have been discussed and clarified.”
In short, contractors should ensure that they are genuinely operating outside of IR35 and should be able to evidence this before reverting back.
How do you go about reverting back to outside IR35 working?
Transferring back to working outside of IR35 is relatively simple. You should first look to confirm with your client that you are working through a limited company. This means they shouldn't be deducting tax on your behalf but rather should be paying your full invoice amount.
Either you or your accountant can sort out your self-assessed tax payments going forward from there. Even if you are working inside IR35, the current rules state that it’s still the contractor’s responsibility to deduct income tax until the reform in 2021. There is no report or anything official that needs to be submitted other than, of course, your routine tax return at the end of the year.
In essence, if you revert back to an outside IR35 status, follow your previous processes prior to the proposed April 2020 changes.
How Larsen Howie can help you with your IR35 status
If you’ve had a previous IR35 status determination completed by a client, you have some choices to make.
If your client has already placed you inside IR35 then they have, in effect, shown you their hand, giving you a good indication of how they will react when the reform does roll around in 2021. Explore your options, educate yourself further, and get a professional assessment of your employment status; you may want to open a dialogue with you client about your status well in advance of the changes coming into effect if it turns out different to their original determination.
We offer a contract full review or contract assessment in conjunction with a working practice review. All of these products include commentary on how to improve your IR35 status and as standard come with a free re-review once suggested amendments have been made. We also offer 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.