IR35 Changes from April 2020

From 6th April 2020, HMRC are introducing their “Off payroll” legislation for all contractors and freelancers.

Previously it has been your decision whether your working status is that of self employment (ie IR35 does not apply) or a “disguised” employee of your end client (is when IR35 would apply).

The new rules in April 2020 do not affect your IR35 status directly but they simply switch the decision regarding your status from you to your client.

As such, if you are not caught by IR35 currently, and you remain in your current role, there is no reason to assume your status should alter after April 2020.

Going forward, if the fee payer (ie agency or end client) assess you as being caught by IR35 legislation they will deduct 20/40% PAYE and employee’s National Insurance from the monies they pay to your company. Employer’s National Insurance will also be paid by the fee payer and as a result of that extra expense the fee payer may well reduce your hourly rate compounding the effect of the new legislation.

These changes have been in place for public sector workers since April 2017.

The rules do not apply to “small” end clients (ie those with 2 of the following conditions; turnover below £10.2 million, a balance sheet below £5.1 million and less than 50 employees).

Under these new rules, if the fee payer assesses you as caught by IR35 they will issue you with a “status determination statement” (SDS). This SDS will include their status decision and their reasoning.

Should you disagree with the SDS you are entitled to appeal to the fee payer who then has 45 days to amend their decision or explain the reasons for their decision.

The SDS status decision should be based on current IR35 legislation and the working conditions of each individual worker. “Blanket” decisions of a number of workers are not acceptable.

Unfortunately, not all fee payers understand IR35 legislation and many decisions will undoubtedly be incorrect. Hopefully fee payers will not make “blanket” decisions as each IR35 status decision is unique to that particular worker.

Horner Downey have successfully defended a large number of IR35 status reviews with HMRC and are experts in determining IR35 status correctly.

We will therefore be available to yourselves to review any SDS you disagree with and to provide an expert review to yourselves and the fee payer.

Although the above changes are significant they are manageable to some extent.

The legalities of assessing your IR35 status are, and will remain, dependent upon your contract and your working practices on site.

Briefly, any contract allowing any one of the following conditions;

• the worker may use a substitute (ie the worker’s personal service is not required),
• a lack of control as to how the work is done
• a lack of mutuality of obligation (ie no requirement to be offered work or for you to accept it)

means that the worker cannot legally be an employee and as such IR35 cannot apply.

So long as the contract is a fair representation of your working practices IR35 would be irrelevant before or after April 2020 with any of these conditions in play.

We would suggest that you review your contracts with regard to the above conditions.

It is expected that end clients will be currently reviewing their contracts and that future job roles will be advertised with anticipated preliminary status, and, clients will assess your IR35 status before the contract starts.

HMRC have an online status assessment tool called “Check Employment Status for Tax” (CEST).

Unfortunately, CEST is biased towards HMRC ie towards employed status and omits critical status questions. Neither yourself or the end client should rely upon CEST.

Unfortunately, this loss of control in assessing your own IR35 status creates uncertainty for yourself.

We would suggest that you discuss the forthcoming changes with your end client to understand their intentions.

We will be available to assist yourselves and your end client in correctly determining your status including IR35 contract reviews.