HMRC Factsheet for Contractors - Changes to Off-Payroll Working Rules (IR35)
This fact sheet runs through who is (and isn’t) affected by the changes to IR35 that are due to come into effect from April 6th 2020. It aims to give guidance and assurance to contractors - however it has also highlighted some troubling questions...
The factsheet states: ‘It is also possible that you will pay additional income tax and NICs if you had not previously been applying the off-payroll rules (IR35) correctly. However, HMRC will not use information resulting from these changes to open a new enquiry into earlier years unless there is reason to suspect fraud or criminal behaviour.’
Although a welcome sign, it leaves a window open…This has fuelled the fears many contractors have of being subject to a retrospective review if they accept either a new “inside IR35” determination or a permanent position.
The guidance also re-iterates that “unless contractors have a direct employment contract, they will not be classed as a direct employee…This means they will not be entitled to statutory payments or employment rights from them.”
Does this create a new “class” of worker, who is neither contracted (with the ability to claim expenses) or employed (with the traditional benefits of a permanent contract)? Could organisations moreover use the new IR35 changes to offer engagements for “inside” IR35 workers rather than permanent employment?
HMRC’s factsheet emphasises that the changes do not affect the self-employed. It also points out that contractors do not need to take any action before April.
However, many organisations have already announced that their response to the new IR35 rules is that they will no longer work with PSC’s. And according to recent research 40% of businesses are still considering phasing out contractors as their response to the IR35 reforms.
Clearly the threat of being unable to continue to contract does require action on the part of contractors before April.
What should Contractors be Doing about IR35?
It is fair to say that many contractors are unsure about their professional future due to IR35. If the organisation you currently supply services to hasn’t contacted you about their framework for IR35 reform, get in touch with them now!
If you are currently using a recruitment agent to supply your services, ask for clarification from them as well.
Following this, take advice from one of the reputable companies that have built their business assisting contractors over many years - such as QDos and ContractorCalculator. They can provide comprehensive information and guidance for you moving forwards.
What Should Organisations be Doing about IR35?
Firstly, communicate clearly with your contracted workers.
Secondly, refrain from “opting out” and announcing blanket determinations (which are both against the guidelines of the reforms and will be harmful to UK business in the long term).
Thirdly, assess all the options and follow an agreed framework in the countdown to the changes this April. Click here for more practical information for organisations