Independent workers and UK private businesses alike were dismayed to hear the announcement in Budget 2018 that IR35 reform rules will be extended to the private sector in April 2020.
Once the reform is implemented, medium and large private businesses in the UK will be handed the responsibility to determine the tax status of self-employed and independent contractors.
In view of the disastrous impact of the public sector IR35 reform, many contractors rightfully fear of being unfairly placed inside the IR35 rules.
Despite all the criticisms, the Government is unlikely to change its plan about the implementation of the taxation reform rules. In this context, private sector contractors and self-employed individuals need to prepare for the inevitable to avoid any grievances later on.
Qdos Contractor, an IR35 legislation specialist, has offered the following advice for private sector self-employed contractors to prepare for the inevitable implementation of IR35 reform in 2020.
Discuss with Engagers
Self-employed individuals and contractors are advised to proactively consult with their engagers about IR35 tax status.
Let the engagers know about the IR35 reform requirements. The proactive stance will help prevent rushed decisions that could be costly in the long run.
Understand Contract Arrangements
Independent contractors should understand the work arrangements to ensure that the contract is IR35 compliant. Consider obtaining a Confirmation of Agreements (CoA) from the engager in this respect.
A CoA document can help in convincing HMRC about employment status in case of a dispute. The document is taken seriously in courts since they show the true nature of work arrangement, and not just an agreement between employer and contractor.
Get the Contract Reviewed
The Check for Employment Status Tax (CEST) tool is ineffective in determining status in certain situations. An investigation by Contractor Contractor found that about half of the assessments using CEST were wrong.
So, it’s important that you hire a professional firm for IR35 status review.
A professional IR35 specialist firm will provide objective advice regarding the work arrangement. The professional review also stands valid in the court.
Qdos Contractor has also advised self-employed contractors to compile evidence that show that their work arrangement is not similar to an employment.
The evidence for being self-employed include having an own website, office stationery and equipment, and multiple clients. Any material evidence will be taken seriously in case of a dispute regarding IR35 status.
After April 2020, independent contractors in the private sector engaged with medium and large UK companies will not be able to make IR35 employment status decisions. Considering the above steps will ensure that they don’t face grave financial difficulties due to a wrong IR35 assessment.