Are you at risk if your IR35 status is incorrect?
IR35 (off-payroll) reforms are due to be implemented on the 6th of April 2021. They will mean that the responsibility for determining your employment status will move from you (the contractor) to your end hirer/agency. It’s important you understand how this may impact you and the criteria you will be assessed against so you can get prepared and remain compliant. We suggest you get in touch with your agency/end hirer as soon as possible to gain clarity on how and when they will assess you, and if your employment status may change.
In the meantime, we’ve answered some FAQs below to put to bed some common misconceptions around the IR35 reforms.
It’s my agency’s/end hirer’s problem if my status is incorrect.
Under the current IR35 rules for the private sector (in place until April 6th 2021), it is not the agency or end hirer’s responsibility to determine your employment status. Therefore, they will not, for the time being, be held responsible if your status is wrong. If HMRC were to challenge your current IR35 status and find it to be incorrectly ‘outside’ before April 2021, your Limited Company would be responsible for paying the extra tax due.
However, from 6th April 2021, the rules are changing in the private sector. It will now be the agency’s/end hirer’s responsibility to assess your employment status, issue an accurate status determination statement (SDS), and pay you correctly (including the appropriate tax deductions). This means that your agency will be the first place HMRC will go if they prove you are working incorrectly ‘outside’ IR35 and employment tax is due. If they can’t collect the necessary tax payments from the agency, they will move up the supply chain to your end hirer to collect the money.
If, post-April, it can be proved that the supply chain hasn’t followed the new rules (for example, by not taking reasonable care in reaching an employment status decision), then the liability will remain with the end hirer, never moving to the agency.
My agency can substitute me, so I’m ‘outside’ IR35.
This isn’t true.
One of the areas you will be assessed against to determine your IR35 status is ‘Right to Substitution’. It is a common misconception that if your agency can substitute you for another worker, this would suggest you’re ‘outside’ IR35.
However, this is not the case. If an agency supplies a substitute worker, they are simply fulfilling their normal function. This wouldn’t satisfy the ‘Right to Substitution’ test as evidence of ‘outside’ IR35 behaviour.
To prove you are working ‘outside’ IR35 in terms of ‘Right to Substitution’, it must be you (the contractor) making the substitution. Your Limited Company (PSC) should have the right to supply another suitably capable worker, and you would be responsible for paying that worker. This would indicate that you were ‘outside’ IR35.
I’m a temporary officeholder, so I’m ‘outside’ IR35.
Again, this is incorrect.
Any officeholder, for example, a HR Director, is treated as ‘inside’ IR35 – even if the role is temporary. This is because the work you are completing is fulfilling the role of an officeholder and you will be temporarily acting as an employee.
It is possible that in this position you could take on a project that was ‘outside’ IR35 elsewhere. Nevertheless, the officeholder position would remain ‘inside’ IR35. In this case, you could work through our simple IR35 FLEX solution, which allows you to switch seamlessly between your Limited Company and Umbrella, depending on the status of your contract.
My contract is for maternity cover, so I’m ‘outside’ IR35.
Contracts for maternity cover will usually follow the same rules as explained above. As the contractor is covering the role of a permanent employee, then by definition, they are likely to be following the same working practices as an employee. Therefore, maternity cover for an employee will be ‘inside’ IR35 in almost every situation.
Find out how you’re affected by IR35 reforms
The rules around IR35 can be complicated and it is easy to get confused. If you’re unsure where you stand, speak to our IR35 experts or visit our IR35 Hub for more detailed information.
We offer a range of solutions for contractors, no matter your IR35 status:
If you’re going to remain ‘outside’ IR35 after April 2021, our experts can advise you on best practice to continue working compliantly through your Limited Company.
Or, if you’ve been issued an ‘inside’ IR35 employment status and you’re looking to switch to Umbrella, then we can help you get set-up within a matter of minutes with our sister company, Workwell – one of the UK’s largest Umbrella companies.
If you’re unsure on the status of your contracts for the long-term and would like to keep your options open, have a look at our FLEX Solution which allows you to simply switch between ‘inside’ and ‘outside’ IR35 roles whenever you need to for one fixed monthly fee. When you’re working on an ‘inside’ IR35 role, you can work through JSA’s Umbrella company and when you’re operating ‘outside’ IR35, you can work through your Limited Company to maximise your take-home pay.
Your next steps
Understanding where you stand in time for April is extremely important because you need to know how you’ll be impacted and if you’ll need to consider new working options. Getting prepared ahead of time will mean that you feel confident you’re working compliantly, no matter your IR35 status, and you can have a smooth and calm transition into your new working option – if necessary.
If you think you’ll be affected by the changes, or you’re unsure about the reforms, don’t hesitate to get in touch with your accountant at Clever Accounts who will be able to give you advice on your situation and next steps. Or, click here to read our previous blog for more information on what makes a contract ‘outside’ or ‘inside’ IR35.