The 2017 IR35 Changes Continue to Confuse
Sometimes, you wonder if there is some unwritten rule somewhere that nothing relating to employment law is allowed to be simple. In a recent article, we looked at the coming changes in IR35 tax and what it would mean to the contractor or employer/agent involved in the process. At the time we said it was a little bit like looking for a grey cat in a thick fog, you knew there was something there, but it was very hard to pin down. We ended the article on the hopeful note that the online assessment tools about to be released would make things clearer.
Before you read on can we remind you that this article is not intended as a guide for you to assess your IR35 status, so you will need to contact a specialist who will be able to give you individual advice.
We are all now nearer the actual implementation of the new rules, and the online tool has appeared along with several other bits of information, but it would seem that to continue our lost cat analogy, the fog seems to have got thicker… and someone hid the cat. So, with that in mind, we thought it worth another quick round up of what has happened and how it all could roll out in the coming months.
Does IR35 apply?
IR35 is essentially based on a determination of whether the contracted person is working as an effective employee or not. If you are acting as an employee, then IR35 applies, and you need to pay tax and national insurance as an employee. It seems simple enough, but there is a huge difficulty with defining what an employee or a self-employed person looks like in terms of working practices. The tool listed below is intended to clarify the situation and allow contractors, agents, and so on to put in a series of answers and hey presto, whether or not you are IR35 compliant should pop out the other end.
We don’t want to be too cynical about it, but the problem is that what constitutes self-employment is not easy to pin down. For example, some things would seem self-evident such as being able to decide your working hours or how the job is done. However, let me point you back to our advice in the second paragraph, the actual circumstances of self-employment are so varied that it is impossible to offer blanket rules. Certainly, if you are contracted to project manage, while you will have some flexibility of working, convenience and standard practice will dictate some of it. Also, how you perform the work is a little bit of a moving target as well. It may be that the working practices you adopt are specific to the client because the contract demands it is done a particular way. In theory, that means you are subject to IR35, but the question remains at what point is that common practice or employment equivalent working demands.
One other key change
One other key change is that the “end engager” is now responsible for determining whether the specific contractor is deemed to be inside or outside IR35. This was a welcome change, or at least you may have thought it was. The issue here is that some public sector bodies have made blanket decisions about job roles and not necessarily assessed each individual…and blanket rules are not supposed to be made. This leaves the door open for contractors to challenge the decisions. So, another grey cat has crept into the fog.
This is just brushing the surface of the problem, and as a result, the feeling now seems to be that the tool is intended to be just a guide to compliance rather than an absolute solution as everyone hoped. However, it is at least something, and it does offer a guide, but it is still the case that each individual instance will be judged on its own merits.
IR35 is public sector based
One thing that is still the case is that the current round of IR35 changes are public sector based. By which we mean that they are intended to find where contractors are being used in the public sector alongside, or in place of, directly employed workers. As a result, some people are predicting a sudden influx of contractors into the private sector, and the public sector will then struggle for talent. There is also a lot of talk that this will roll out to the private sector in the relatively short term.
A shift in responsibility
In the end, we will need to deal with these changes but there are issues, and some commentators and industry people in the recruitment arena are less that enamoured of the new rules. As one of the key changes is the shift in responsibility for assessment, it means a big upheaval in the way recruiters work. Speaking for the Association of Recruitment Consultants (ARC) recently Chairman, Adrian Marlow said:
“We believe the new approach needs a thorough review so that it does not slip under MPs radar.”
An industry body suggesting pushing this issue to a parliamentary concern would seem to suggest that it is proving to be controversial, to say the least.
Whatever your personal feelings on the relative fairness of IR35, it is a fact, and it is here as of this tax year. Our suggestion remains, take advice and protect yourself as much as possible.
Online tool:
http://tools.hmrc.gov.uk/esi/screen/ESI/en-GB/summary?user=guest
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