The rollout of the IR35 private sector reform has been given the green light to commence in April 2020. The news, announced in July, will see off-payroll rules extended to large and medium-sized businesses in the private sector. So what should those contractors affected do to prepare for the change?
James Foster, the Senior Commercial Manager at Optionis Group and holding company for SJD Accountancy, gives five pieces of key advice to help private sector contractors plan ahead.
Know how the process will work
When the private sector reform is rolled out, it’s important to fully understand how the process will work from April 2020. This includes knowing that the end client (if they are large or medium-sized businesses) will be responsible for determining a contractor’s IR35 status – in other words, whether they’re inside or outside IR35. This means that even if you’re confident your business is operating outside of IR35, the end client might decide otherwise. So it’s wise not to assume your status before your end client informs you of their decision.
Understand what defines your IR35 status
A key point of advice (and probably the most important) is to know what factors will determine whether your contracts are inside or outside IR35. There are three key factors that will be looked at. These are: direction and control – how much control your client has over the way you work; substitution – whether you can supply a replacement to undertake your work if you can’t; mutuality of obligation – whether your client needs you to complete a specific project or whether either party expects additional future work. Other factors are also considered, including whether you use your own equipment, whether you’re in business on your own account, and whether you have financial risk.
Check your working practices
It’s important to also mention that HMRC won’t just look at contracts when assessing a contractor’s tax documentation. The government department will also look at their working practices. So it’s imperative that your working practices, such as the autonomy you have over the way you work and how integrated you are within the business, reflect that you are not a ‘disguised employee’ and caught inside IR35.
Be prepared to renegotiate your rates
If your end client decides your status is inside IR35, you should be aware of the changes that will happen to your pay. Your fee payer will be responsible for deducting national insurance and PAYE from your take-home pay, meaning this will be reduced. To prepare for if this happens, it’s worth considering negotiating higher rates to help you achieve the same take-home pay as you previously earned or look at your other options elsewhere.
Speak to an expert
Finally, to make sure you’re fully prepared for next April’s reform – and aren’t faced with any hidden surprises – you should speak to an expert. An IR35 expert, such as SJD Accountancy, can help you stay on the right side of HMRC. They can also help you make the most of your earnings as a contractor, provide proactive advice and get your finances in the best possible shape.
It’s worth noting that when inside ir35 the total deductions from the agreed day rate include the employers NI contribution and there apprenticeship levy. So not just your tax and NI.
I don’t think HMRC had that in mind when umbrella companies interpreted the rules!
Actually not true. It is against the law for an employer to deduct their NI and apprenticeship levy from your day rate. Only employees NI and Tax.
However they will likely try to renegotiate your day rate down by the 14.3% to recover their costs.
And as we will be looking for an increase of some 20% to claw back our increase costs then there should be some lively discussion next year!