You will probably have heard that the government has delayed the changes to the IR35 rules for twelve months. But untangling any new arrangements recently put in place could be messy for those affected. What steps should you be taking?
What’s happening?
The shift of responsibility for determining if IR35 applies is delayed until 6 April 2021. Until then if you provide services to private sector businesses through your personal service company (PSC) or other intermediary, you and not your customer must decide if your employment status is within the scope of IR35 . That is, if you worked for your customer directly you would be classed as their employee. Note. The delay doesn’t affect work you do through an intermediary for public bodies. In that situation it remains up to the public body to decide if IR35 applies.
Trap. If you’re looking for more information about the change online be aware that you may find some pages refer to the new rules applying from 6 April 2020. You can safely ignore this. For the definitive word look on HMRC’s “Off-payroll working rules” communication resources page or on the Treasury website (see The next step ).
Continuing risks
According to HMRC, a lesson contractors can learn from the saga is that it underlines the risk they run in using IR35 avoidance schemes.
Typically, these offer to cut income tax and NI by using an umbrella company that converts your income into a loan. If you think you might be involved in this type of arrangement, use the delay in the new rules to review and extract yourself from such schemes (see The next step ).
Changing horses
The U-turn comes so late that getting back to the way things were isn’t necessarily a quick fix. If you’re still working through a PSC or other intermediary, make sure your customer knows the change is on ice.
Tip. Your customer should continue to pay your invoices without deductions for income tax or NI regardless of whether it has already issued you with a status determination statement (SDS) indicating that IR35 applies to your contract with them.
SDS is not evidence of IR35 status
Because the delay in the new rules was decided at the eleventh hour there’s a good chance you’ll have already been given an SDS by your client, as part of their gearing up for the change. HMRC is reported as saying that because of the delay in the new rules an SDS has no standing in law. Therefore, if HMRC starts a tax enquiry in the coming year, it won’t treat an SDS as evidence indicating whether IR35 does or doesn’t apply.
Tip. If you received an SDS putting you within IR35 and you didn’t agree with it, use the extra twelve months to gather the evidence together to dispute it before April 2021.
Reconsider. If your contract recently expired and your client hasn’t decided whether to re-engage you because of the new IR35 rules it now has time to reconsider. It might be worth approaching the client to see if they will sign a new contract for, say, up to six months, in which time you can both review the terms of a longer-term arrangement.
If you provide services to private sector customers via your personal service company etc., it remains your responsibility to decide if IR35 applies until April 2021. Make sure your clients are aware of this and confirm that your fees will be paid without tax and NI deductions. Use the extra time to settle disagreements over whether IR35 applies.
The next step
To further information about avoidance schemes
To the treasury
For links to HMRC
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.