Planning for the extension of IR35 to the private sector

After plenty of toing and froing, extending the off-payroll working rules to the private sector will go ahead on 6 April 2021.

Earlier this year, we published a blog post about the imminent extension of the off-payroll working rules to the private sector.

Little did we know at the time that a pandemic was around the corner and that it would have such a devastating effect on the UK economy.

These changes to off-payroll rules were due to kick in 12 months earlier, on 6 April 2020, but were delayed as part of the Government’s economic response to COVID-19.

Campaigners saw this as an opportunity to try and further delay or remove the off-payroll working rules, commonly known as IR35.

But the Government’s majority quashed those efforts in the third reading of draft Finance Bill 2020, which has since been written into law.

With around six months until the off-payroll working rules extend to contractors in the private sector, we revisit the complex reforms.

Options for private-sector businesses & contractors

The changes will only apply to medium and large businesses in the private sector, and any contractors they engage, from 6 April 2021.

From that moment, these businesses will assume responsibility for setting the tax status of any contractors or freelancers they use.

With six months until the rules extend, they should focus on making fair IR35 status decisions to ensure compliance.

For contractors, discuss the changes with the business or agency and reiterate the importance of them making well-informed assessments.

Doing this should help ensure the contract belongs outside of the rules, despite businesses or agencies making the decision on their behalf.

Also consider compiling evidence to show your contract falls outside of IR35, in case HMRC opens an investigation and offers that chance.

IR35 ‘evidence’ for private-sector contractors

“Evidence” is a fairly opaque and complex term in this context, but our experts can provide more detail on each of the following summaries which apply specifically to private-sector contractors.

Having a written agreement between your public service company and a substitute who is ‘ready to go’ can be compelling evidence.

Likewise, if you can show you chose where to work, your hours of work, and provide a clear description of your deliverables, you might demonstrate a degree of control. Writing these down should make it clear you cannot be moved around by the client to work on other projects.

If you can prove you are exposed to financial risk, you might be able to make a case for your contract being outside of the IR35 rules. For example, buying business assets or charging a fixed price instead of an hourly or daily rate might prove you are taking on financial risk.

It is also possible, but much more difficult, to demonstrate that a mutuality of obligation does not exist. We can advise on what records you should keep to potentially help with your case.

For detailed advice on how the off-payroll working rules may apply to you, contact us on info@stapletonsaccountants.co.uk or call 01363 773191 and ask for our personal tax planning service.