Conservatives IR35 Reforms
Many contractors are doing nothing at all about the Conservatives IR35 reforms. If they don’t act now they will suddenly find themselves sitting HMRC’s IR35 online test Check Employment Status for Tax (CEST) at their client company. Most will fail it simply because they have made no preparations
They should have changed their contracts and working practices well before they are forced to sit the test. It’s no good contractors changing their contracts and working practices afterwards. The die is cast and the results will be sent to HMRC for further information.
So, the contractors will be PAYE payers probably forever. Yet, if they had acted, they would have got themselves outside IR35 and been able to continue using their Personal Service Companies. The result of contractors inaction could cost them 20 grand a year.
Contractors Questions on Conservatives IR35 Reforms
- What are Companies doing about Contractors and Conservatives IR35 Reforms?
- Who decides a contractor’s IR35 status?
- What Happens if a Company Gets a Contractor’s IR35 status wrong?
- How is a contractor’s IR35 status tested?
- Are many contractors making preparations for the test and Conservatives IR35 Reforms?
- Are contractors Wise Virgins or Foolish Virgins?
- What Preparations Can Contractors Make to Stay Outside IR35 Before Testing?
- When Should Contractors Get Their Contracts and Working Practices Changed?
- How Can Contractors Organize Themselves Effectively against Conservatives IR35 Reforms?
- What Should Contractors Change in their Contracts and Working Practices?
- How Can Companies and Recruitment Agencies Help Contractors Stay Outside IR35?
What are Companies doing about Contractors and Conservatives IR35 Reforms
I was talking to a person recently who is responsible for implementing the Conservatives IR35 reforms at a major UK company. His company are currently testing their contractors.
So, they will have no blanket ban on contractors using their personal service companies. They had hoped to use a tool created by a big consultancy that they use. However, they decided that, reluctantly, they would have to use HMRC’s tool Check Employment Status for Tax (CEST).
That’s because it is the only IR35 test that comes with a guarantee. HMRC say that they will stand by the results of any CEST test on contractors even if the contractor who tests outside is later found to be inside IR35. This is a massive incentive to use the CEST test.
Who decides a contractor’s IR35 status
Hiring companies are now responsible for determining a contractor’s IR35 status.
Now, HMRC’s IR35 test has been highly criticized as being a very inaccurate measure of whether a contractor is insie IR35 or outside.
Indeed, the details of two contractors who had won their IR35 cases against HMRC at employment tribunals were put through HMRC’s IR35 test afterwards.
Guess what?
The dodgy tool found them to be inside IR35 when the courts said that they were outside IR35.
What Happens if a Company Gets a Contractor’s IR35 status wrong
So, hiring companies are now responsible for a contractor’s IR35 status. They will now be financially punished if they get it wrong.
So, if they use a tool created by one of the big consultancies or Accountancy firms, if they get it wrong there could be massive penalties on them. Recently the NHS was fined £4.3m for wrong assessments.
So, the Conservative Government’s reforms mean that there is a massive incentive for companies to use HMRC’s dodgy tool when assessing contractors status.
How is a contractor’s IR35 status tested
My contact at a company who are currently assessing contractors said that they are disappointed by the number of contractors testing inside IR35.
When inputting contractor details onto the HMRC test all they have to go on is the contractors’ current contracts and working practices. And that showed so many of them to be inside IE35.
The company did not want this to happen but they had no choice. Many of their contractors current contractors and working practices showed them to be inside IR35. That’s according to HMRC’s tool anyway – which comes with a guarantee.
Are many contractors making preparations for the test and Conservatives IR35 Reforms
None of those contractors had made any preparations for the test.
There are three types of people in this life.
There are:-
- People who make things happen
- People who things happen to
- People who say “What happened?”
I’m afraid that these contractors were in Category 3. This will cost them probably 20 grand a year and will make it very difficult for them to operate as a personal service company contractor ever again. HMRC will have their failed test results.
It’s not just these guys who are making no preparations for their looming IR35 tests. Most contractors are not taking any action. It will come as a shock to them when they are suddenly asked to sit the test at their client company.
Are contractors Wise Virgins or Foolish Virgins
Anyone who knows the bible will know the parable of the 5 Wise Virgins and the 5 Foolish Virgins. One lot made preparations beforehand and the other lot did not.
I’m afraid most UK freelancers are acting like the 5 Foolish Virgins.
What Preparations Can Contractors Make to Stay Outside IR35 Before Testing
So, what can contractors do to stay outside IR35 to be able continue to use their personal service companies?
It’s actually pretty easy. It may sound obvious but what they must do is to change both their contracts and working practices.
Remember that the companies testing you are being pulled two ways.
Firstly they want you to test inside IR35. Secondly they will be risk averse and would not want to be accused by HMRC of putting false data in. This would invalidate the test. So, in the answers to the questions they will err on the side of caution.
When Should Contractors Get Their Contracts and Working Practices Changed
Contractors must get their contracts and working practices changed well before they are called for the test. Contract renewal time would be a good time to do this.
However, you run the risk of being tested before you come to contract renewal time. So, you might want to be proactive about getting your working practices and contract changed.
How Can Contractors Organize Themselves Effectively against Conservatives IR35 Reforms
I think it might be a good idea for contractors at a company to get together and ask to meet representatives of the company.
They would advise the company that the contractors at the company want to be able to change their relationships with the company in terms of their contracts and how they operate The idea is to differentiate themselves as much as possible form e way permanent staff operate.
Remember though, that although companies want to help contractors they won’t do anything to make it look to HMRC that they are conspiring with contractors to take contractors falsely outside IR35. However, if contractors requests are reasonable the company may agree to the changes. This could make all the difference.
What Should Contractors Change in their Contracts and Working Practices
So, what should contractors change in their contracts and working practices to put them outside IR35 when they do the test?
Well, here’s one I prepared earlier. This advice comes from real court judgements in IR35 cases.
18 Ways to Stay Outside IR35 Courtesy of the Special Commissioners
How Can Companies and Recruitment Agencies Help Contractors Stay Outside IR35
Companies and contractors can combine to agree changes to contractors’ contracts and working practices to take them outside IR35. Here’s what companies can do to help contractors.
Avoid Paying IR35 Tax – How Companies Can Help Contractors Stay Outside It
The recruitment agency is crucial here in getting contracts changed. They are the only ones who have contracts with both other parties, companies and contractors.
How Recruiters Can Help Contractors Stay Outside IR35
Please get this information out to as many contractors as possible. You could be saving them 20K a year. You could also be helping the freelance professions to survive.
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