The common conception (based on feedback and industry insight) is that contractors – for the most part, would like to continue to operate outside IR35 (if this is their current position). Being outside allows the individual to continue trading through their PSC allowing them to, in turn, operate with greater tax efficiency.
What is less clear from a contractor’s perspective, however, is what each end client is doing to ensure that their approach to IR35 determination is robust and comprehensive.
Below are hallmarks of a client who is more likely to assess your IR35 position thoroughly and correctly.
There have been a lot of useful, impartial determination tools pop up in recent months.
CEST is the government’s version, a much-maligned determination tool that seems to be weighted more strongly towards an inside IR35 result than outside. CEST pays little attention to key factors such as mutuality of obligation and is strongly reliant on the concept of substitution. A brief review of any contractor forum would illustrate that CEST is referenced as having played a major role in thousands of incorrect status assessments.
Fortunately, lots of businesses realize this. The recognition of CEST’s short-comings soon turned into publication and discussion within the industry, resulting in many businesses opting for a second opinion from a third party specialist (such as Optimus Shield). These specialists offer a more robust, impartial review with conclusions that are fully insured against challenge.
Ask your end client if they are considering any determination platform aside from CEST.
The 12-month delay of IR35 has provided businesses with well needed time to fully prepare for the changes.
Preparation of resources is vital, and could perhaps be the difference in a contract being determined inside or outside the legislation.
Many businesses choosing to procrastinate could find themselves in a panic come March next year, leaving little choice but to adopt a more risk-prone, shallow approach to determination and process. The party most impacted by this lack of preparation will, unfortunately, be the contractor.
Ensure that you ask your end client how they are preparing for IR35.
Assessing IR35 status on a case-by-case basis greatly improves the chances of an accurate determination for that individual assignment. If that is not reason enough to treat each entity with exclusivity, the government will be identifying blanket determination approaches and the party responsible will be left to justify their approach.
Contractors should take confidence from clients who ask questions and take evidential care in assessing their contract parameters. Firms leaning towards a blanket determination approach are more likely to overlook important nuances in your working arrangements.
The question to be raised is: How can an end-client make a comprehensive decision about your contract and your working environment without any personal consultation?
Reputable businesses engaging with contractors understand that implementing changes relating to IR35 reform is a challenge. Expertise, legislation knowledge, careful management and communication all need to be prioritized.
Willingness to illustrate and divulge IR35 strategy and determination procedure displays a pro-active, transparent approach that should instill peace of mind for you as a contractor.
Not all businesses will involve contractors in their IR35 decision-making process. However, it is good practice to keep contractors updated with transparent information regarding their status regularly. Consistent contact from a client won’t necessarily impact the end result, but it can suggest that they are considerate towards your individual circumstance and that they understand the importance of clear communication in a professional context.
Our advice to contractors is not to assume determination status without consultation and coalition. You will likely look at your contract specifics and find reasons to place yourself outside of IR35 if that is indeed your desired position – we would recommend an open discussion with your end client; this way you’ll have the justification of their findings but you’ll also be able to voice your opinion.
A positive takeaway, for now, is the suggestion that many firms want to retain as many ‘outside IR35’ contracts as they can. Businesses rarely set targets or percentage thresholds of contractors that they would like to engage outside IR35. Instead, firms will carry out prior audits devising a strategy to ensure the proper processes are in place to compliantly engage legitimate contractors outside the legislation, a win for all involved.
Do you have IR35 concerns? Do you contract in the private sector and feel you may be impacted by the upcoming changes? Are you an end client struggling with determination or process logistics? Be in touch, we’d love to share our knowledge with you further.