The delayed Autumn Budget means continuing uncertainty for contractors likely affected by the IR35 off-payroll reforms. In the meantime, there are a number of potential solutions which are being explored by contractors, including whether it’s possible to work through a consultancy.
Indeed, working through a consultancy may well be a viable alternative for some, though you must proceed with caution.
A genuine consultancy arrangement would be acceptable, whereas any arrangement which appears to have been set up to avoid tax, would not.
When considering whether a consultancy arrangement would be right for you, it’s important to look at the size of the consultancy as well as contract wording vs actual working practices.
The relevance of size
Large businesses – The IR35 reforms apply to large businesses only, so if you are or become a contractor providing genuinely contracted out services via a large consultancy, then the consultancy would be considered your end engager and would therefore be responsible for determining your IR35 status. This may be an attractive scenario for end engagers which do not want to have to carry out contractor assessments. However, we emphasise the phrase ‘genuinely contracted out’.
Determination of your IR35 status will, as it does now, look at your actual working practices, not simply what is written on your contract. Anything which looks like a false arrangement ie. the activity is not genuinely contracted out but is disguised employment, will mean the end engager carries the IR35 assessment responsibility.
To understand if services are genuinely contracted out, you need to look at whether the consultancy or the end hirer is responsible for managing the resources required.
For the consultancy to be responsible for IR35 status determination, it should operate its people resourcing without involvement the end hirer. So, the consultancy would take responsibility for managing the people it provides to complete the work, structuring payment for the consultants and act as the channel of recourse, should the end hirer have cause to complain, among other things.
Small businesses – if the consultancy you are part of is small, then determination of your IR35 status would rest with you, the contractor, just as it does now. This is because the off-payroll reforms do not apply to small businesses.
This, again, may be an attractive alternative for end engagers as it avoids the need for them to become responsible for status determination. Again, however, compliance boils down to ensuring that the provision of services is entirely ‘contracted out’.
A group of contractors who join forces to form a consultancy in order to work around IR35 reforms would need to be careful here.
It’s likely that a new contract would be required to reflect the fact that services are provided by a consultancy, not by an individual contractor. The consultancy, not the individual contractor, would have rights and obligations over the provision of services. This gives rise to other considerations, as a contractor who is well-established with an end hirer would, in effect, have to be willing share the provision of services with other contractors in the consultancy.
What to do?
IR35 is certainly a complex issue. If you wish to explore whether joining or forming a consultancy would be the right approach for you, please get in touch. We have extensive knowledge of the IR35 legislation so can offer tailored advice and information.