Contractors should be well on the way to preparing for the arrival of IR35, as it is now just around the corner. For those who still have questions about the scenarios that they might face now that IR35 is in play, this article will help to discuss some of them in more detail.
All contractors should reach out to their accountant and discuss the details of the extensive guidance that HMRC has made public for contractors related to IR35. As of April 6th, 2021, this guidance will be the means by which all decisions about status and tax due are made for contractors.
Contractors must also make sure that they continue to determine their own status so that they can check it against the contracts that are being offered to them. Many clients and other entities will make mistakes related to IR35, and contractors must protect themselves from the errors of others. Personal due diligence can be the difference between the correct tax being paid and incorrect tax being paid.
Contractors have the choice to move from to an umbrella as part of the recruitment agency or end-client’s new process of engaging contractors. This can open up many questions, but once again, being well-versed on the subject is helpful. There are benefits to both models of engagement, and contractors will need to know which style of engagement is right for them.
If a contractor does not agree with the status determination statement that is sent out to them for a contract, they will need to respond to this immediately. For contracts that are on-going through the change, there might be alterations to the nature of the contract that the contractor does not wish to agree to. This means that contractors will need to appeal to the client about the change.
The other consideration that must be taken into account is that small company exemptions, and overseas taxes are not going to work in the same way. Contractors will need to know the rules related to both conditions to be certain that their contracts are being executed correctly.
HMRC investigations can result from changes in status, so contractors are urged to act immediately if they think that their contract has been changed to the incorrect status, or if they think that a blanket ban has been levelled against them.
Contractors can use HMRC’s tools to help them with these issues, but CEST and some of the other tools they have offered to contractors are unreliable and result in incorrect status determinations frequently. The best way to make sure that contracts and determinations are correct is to seek professional assessment and advice.
Contractors must remember that these rules are new to everyone involved in the process, and they should not assume that clients or umbrellas will know the rules well enough to take tax correctly or to handle other contract determinations properly. Contractors have no one but themselves to fall back on to help make certain that they are not investigated by HMRC. As such, contractors should be as educated as possible about the rules of the new IR35 to prevent them from struggling with the back tax they may not owe and a whole other myriad of issues.
