Want to avoid IR35? Stop acting like an employee

Want to avoid IR35? Stop acting like an employee

So, the Off-Payroll Working Rules are set to be extended to the private sector in April 2020. If you’re a contractor, and you’ve somehow managed to avoid hearing about this, basically, your end-client (engager) will decide whether you’re employed or an independent contractor. Unless you get on the ball now, you’ll have next to no influence on how you are deemed.

HMRC don’t like it when workers decide their own status: they think that all contractors are pretty much tax dodgers and only operate through a limited company to avoid tax – and to be fair there are a fair few who do – but what HMRC fail to realise is that the steady erosion of the tax advantages over recent years has weeded out the chancers

There three main “pillars” upon which a status decision should be based: mutuality of obligation (MOO), direction and control (D&C) and right of substitution (RoS). RoS is the golden ticket: if you can send a substitute to provide the services your company is contracted for, then it is impossible to consider it a personal service contract, and therefore it cannot be deemed an employed scenario. D&C and MOO are a bit more difficult to establish but they should always, always be considered. It’s also good practice, if you don’t want to be treated like an employee to stop behaving like one.

If you want a business-to-business (B2B) relationship with your client, then act like a businessperson, not an employee. There’s an employment mindset that can exist in large client sites and this needs to stop. Less savvy contractors can get carried along on this wave, and end up talking about “bosses” and “line managers”, and maybe you submitted a CV to be considered for the job put forward by a recruitment agency. Does that sound like the way a genuine self-employed contractor acts? Think about the way you last engaged a self-employed person in your day-to-day life: when that guy came to fix your roof, did you ask to see his CV? Does your cleaner call you boss? Of course not, so maybe it’s time you applied the same principles to your business engagement. Here’s some changes to implement in your business next time you’re being put forward as a contractor:

Don’t provide a CV. CV’s are for individuals seeking employment. You should instead be providing a Business Experience Profile which shows all the areas that your business, and it’s key people, are able to provide expertise in, and what you’ve done in the past.

Don’t attend interviews. Interviews are for employees. Instead offer to attend an exploratory meeting or discussion with the prospective client to determine if you can do business together.

Don’t ask for a job description. JD’s are for employees (are you seeing the trend yet?). Instead ask for a project-based scoping document. That means that the client will need to be a bit more specific. They can;t just say “Systems Analyst” and be done with it. You need to know the key deliverables, the timeframe and any milestones that need to be achieved. Don’t accept that the client will tell you how to do the work (remember Direction and Control). Think of it as a taxi ride, with you as the driver, and the client in the back. They’ll tell you the deliverables (the destination) but you decide the process (the route).

Understand that at the end of the project, that’s the end of the relationship. After this project (that the client has carefully specified) concludes, we both understand that the client is not obligated to provide any new work to my business, nor is my business obligated to undertake it. If the client has got a new project they’d like my business to work on, we’ll put together a separate contract with those specifications embedded as before.

Remember you don’t have a boss or a line manager. And you don’t want an employee pass, or an employee parking space, or to go on work’s nights out. You’re a self-employed contractor so stop looking for, or blythely accepting, the perks of an employee.

Don’t accept an outside-IR35 contract if it does not align with your understanding of the working practices. We appreciate that this can prove challenging as the working practices may not become clear until after you have signed the contract. But it is very important that the contract reflects the working practices and vice-versa. Under enquiry, HMRC will be far more interested in the working practices than the contract wording and if it can be established that the contract is a sham, then you may have some tough questions to answer. 

Now, we appreciate that is a rather large departure from how things currently are with most projects but if you want to continue in a self-employed capacity beyond April 2020, then things are going to need to change. Successful implementation of these changes obviously relies upon the will of the engager and the agency as well as the contractor, and if it seems like a bit of a reach, and that you just wouldn’t possibly be able to get to an agreement along these lines, then you might well be part of the problem. Anything less is probably going to fall foul of the off-payroll rules and you should probably be employed anyway. If you want to remain self-employed, time to stand up and be counted. Walk away from projects if the terms of engagement doesn’t suit. The more people that do, the better the chance that the clients will take this seriously.

Autumn Budget 2018 – Our First Thoughts

Autumn Budget 2018 – Our First Thoughts

The Budget Statement sets out the government’s fiscal plan for the short-term future of the UK economy but there was really only one item of any interest to the country’s contractors so let’s get straight to it.

Private Sector Off-Payroll Reforms

We knew that the Chancellor was going to introduce the IR35 reforms to the private sector, we just didn’t know when. Now we do: April 2020.

These changes mainly revolve around shifting the burden of responsibility for confirming IR35 status from the contractor to the end-client or agency. If the contractor is IR25 caught then the agency or end-client will also be responsible for operating tax and NI deductions. The risk of getting this wrong will also rest with the end-client or agency and the concern is that the risk-averse will simply make blanket “inside-IR35” assessments as has been seen in the Public Sector.

We are encouraged already by the private sector response and we, along with our legal team and other advisers and pressure groups will be working tirelessly to come up with workable solutions and plans so that our clients, and the wider contractor community, are not adversely affected.

Personal Allowance and Higher Rate Threshold

From tax year 2019/20, the personal allowance will be raised to £12,500 and the higher rate threshold will increase to £50,000.

Entrepreneurs’ Relief

With many contractors moving back to staff positions because of the uncertainty around the off-payroll reforms, ER and Capital Gains has been an important tax planning tool.

Effective from April 2019, in order to qualify for ER, contractors and other entrepreneurs will need to have owned their business for two years (up from one) before selling or disposing.

VAT registration threshold

The VAT registration threshold will be maintained at £85,000 for the next two years at least.

Commenting on the IR35 reforms, Alan Broome, Broome Affinity Group’s directors said “On the face of it, this is good news for those of us inside the contractor bubble, as we know the reforms are being implemented in eighteen months and not the unworkable six months many (including us) feared. But other than that there are a significant number of concerns about the reforms, significant enough in fact that the government have admitted that it will already need to refine the reforms.”

So once again, we are in what our pals at IPSE describe as a “holding pattern despair” with the only certainty being that things are still uncertain. For now, it’s business at usual at Broome Affinity Group and we’ll continue to strive to provide the best contractor accounting solution around. Rest assured that in the meantime, and for the next eighteen months at least, we are working hard, very hard indeed, on ensuring the contractor model continues to be viable beyond April 2020.