A pitstop guide to the most frequently searched questions about IR35 reform

Somewhat surprisingly, despite IR35 reform in the private sector being just days away, research reveals that search interest in IR35 has plummeted since the delay to these controversial changes was announced last year.

The data, analysed by specialist insurer Markel Direct, shows that the search volume for IR35 topics has dropped by 71% since last year’s announcement that the legislation change would be postponed due to the COVID-19 pandemic.

So, to help ensure contractors are well-prepared ahead of the 6 April deadline, Paul Mason, Head of Tax Partnerships at Markel, has answered the most asked questions about IR35 according to search engine data.

From ‘how to prepare’ to ‘how much worse off will I be’, this article details Paul’s answers to guide contractors navigate the looming changes.

How to prepare for IR35 reform

Start by checking your engagements:

Will you still be responsible for assessing the engagement (this is the case if you are working with small companies)?
- In this context, small companies must have two of the three following characteristics: <£10.2m turnover, <50 employees or a balance sheet total of less than £5.1m
Will the responsibility lie with the end client (this is the case if you are working with medium and large companies)?

Talk to your agency/end client and find out what steps are being taken to determine the IR35 status of engagements

Speak with your accountant and find out whether remaining as a limited company is the best option

Who does IR35 reform apply to?

The IR35 legislation, also known as off-payroll working, applies to contractors (who undertake the work itself), end clients (who make the status decision) and fee payers (who can be end clients but are often agencies where they sit above the contractor’s company in the supply chain).

In a sentence, IR35 reform will see the end client will become responsible for determining IR35 status and, assuming all legal obligations have been met in the supply chain, the fee payer will have the IR35 liability.

Can IR35 be backdated?

Yes. Whilst the IR35 rules are changing dramatically in April 2021, HMRC can still open a retrospective enquiry into your tax and National Insurance Contributions, which could go as far back as four or six years depending upon the circumstances. HMRC have clarified that they will undertake such enquiries if they suspect fraud or criminal behaviour.

What does IR35 stand for?

IR35 stands for ‘Inland Revenue 35’, which was the name of the press release that first announced the anti-tax avoidance legislation in 1999. The correct term is the Intermediaries Legislation – the contractor’s limited company being the intermediary.

How much worse off will I be when working inside IR35?

Calculating how much worse off you will be financially if a contract is deemed to be ‘inside’ IR35 depends on your individual circumstances.

As an example, a contractor earning £75,000 a year could expect to take home £52,546.32 in retained income if they are ‘outside’ IR35. If they are caught ‘inside’ IR35, the contractor might take home £45,563.95 – so would be almost £7,000 worse off.

Additionally, if your engagement is ‘inside IR35’, any subsistence costs will have to come out of your take-home pay, which means that you could be considerably worse off than £7,000.

Does IR35 reform apply when working abroad?

Again, it depends. If the contractor is a UK taxpayer, IR35 must still be considered even if they are working abroad or being paid in a different currency. Who determines the matter will depend upon whether the end client has a UK presence. If the end client has no presence in the UK, the contractor must assess their own IR35 status.

Can IR35 be avoided?

Contractors can’t legally avoid IR35 if they are providing services through a limited company. Your end client will make the decision or, if you are engaged by a small company, it is your responsibility. That doesn’t mean whether you want to apply IR35, but whether it should apply.