As a limited company contractor, you’ll probably be familiar with the IR35 legislation. Whilst IR35 has been around since 2000, changes were made to its application in the public sector in 2017. Similar reforms were due to take place in April 2020, but due to COVID-19, this was put back to April 2021.
What about the application of IR35 changing?
The April 2021 reforms bring the private sector and public sector in line. Whilst the IR35 legislation itself isn’t changing, the responsibility for determining the IR35 status of an assignment shifts from the contractor to the end hirer utilising your services (except when the end hirer is classed as a small company – in which case, determining your IR35 status remains your responsibility). There are other important changes that will apply to both the public sector and the private sector.
It was confirmed by the UK Government that there will be no further delays to the IR35 reform, and a smooth and successful implementation will go ahead in April 2021.
As the UK’s leading provider to the contractor market, we will continue to help educate the contracting industry and represent the view of tens of thousands of contractors across the UK.
Some end hirers in the banking sectors, such as HSBC, Lloyds and Barclays, have already taken a blanket approach, announcing that they will not be utilising contractors operating through Personal Service Companies going forward. However, we have also seen a large number of end hirers not taking a blanket approach, recognising the importance of using limited company contractors in their business model. What is evident in both scenarios is that these IR35 reforms in the private sector are very high on the agenda to end hirers.
Many agencies and end hirers are working with specialist IR35 advisors to ensure they can continue to engage limited company contractors on an outside of IR35 basis, as before. Many businesses are realising that it is perfectly possible and legal to successfully manage the IR35 reforms with the right support and guidance. We believe that limited company contracting still holds a very important place in the UK economy, as well as in the lives of the individuals who have chosen to provide their specialist skills through their own companies, over traditional employment.
What does this mean for you?
Where the assignment is assessed as inside of IR35, the ‘fee-payer’ (the organisation that makes payment to the personal service company and which is often an agency) will become the ‘employer for tax purposes’. The fee-payer becomes responsible for making PAYE tax and NI deductions at source before making payment to your limited company.
You will not pay corporation tax on the income from this contract. Your accountant must be made aware of the IR35 status of the assignment so they can account for it accurately.
What should you do now?
The underlying factors that determine the IR35 status of an assignment are not changing. If your assignment has been assessed as outside IR35 prior to April 2021, it should still be outside IR35 post April 2021. If organisations are assessing contracts fairly and correctly, there is no reason for a change to your IR35 status.
Communicating with your end hirer is essential. You need to know what their approach to the reforms will be and how this will impact you. Nixon Williams is here to support you through the changes.
Our expert IR35 team is on hand to assist you with IR35 reviews where your status is in dispute. If you would like our help, please let your accountant know and we will happily support you.
Lessons from the Public Sector Reforms in April 2017
When the reforms were introduced in the public sector in April 2017, organisations were given very little time to prepare. This caused many public sector organisations to take a knee jerk reaction, such as blanket assessments and bans on those contracting through a limited company, as we have seen replicated by some of the banks ahead of the 2021 reforms. This meant many contractors were simply assessed as inside of IR35, without a fair or accurate review of their IR35 status. This resulted in public sector bodies struggling to fill critical roles and disruptions to key projects.
Thankfully, as the public sector bodies have grown more familiar with IR35, and realised that the changes are manageable, we have seen more contracts offered on an outside IR35 basis.
It is important to keep this in mind, that despite a potential period of uncertainty for contractors in the lead up to April, we have been here before and are here to help. Be wary of making rash decisions, there are a number of different options that might be available to you.
It may be an uncertain time in the contracting world, but, as we have seen in 2020, contractors have proven themselves to be resilient and resourceful. The upcoming IR35 reforms may present challenges, however, this does not necessarily mean that you can no longer work and operate as a limited company.
What are my next steps?
Whatever the policy of your end hirer, as your accounting partner, we at Nixon Williams are here to support you. We can assist with IR35 reviews and introduce you to Parasol, our sister company and founding member of the FCSA for those assignments found inside IR35. Your accountant is well placed to advise you further, if you have any questions please fill in your information below and a member of the team will get in touch.