With reforms to off-payroll in the private sector planned for April next year, there are naturally lots of questions being asked by limited company (PSC) contractors who may be affected.
One of the key areas of concern focuses on status determination, which will rest with end hirers under the new rules.
Under the current rules, it’s up to each individual contractor to determine their own IR35 status and ensure they pay the correct taxes. )We support hundreds of contractors to make sense of the IR35 rules, and to work compliantly, so get in touch if you’re not sure if an assignment would be deemed ‘inside’ or ‘outside’ IR35).
If the Government goes ahead with the planned reforms to off-payroll (IR35) next April, then the situation will change, and your end hirer will be responsible for determining your IR35 status. We anticipate that some contractors will find that their status gets changed from ‘outside’ to ‘inside’. There are various reasons for this, but any of the following could apply:
- End hirers may make a different interpretation of the IR35 criteria as it applies to a particular assignment.
- End hirers may decide it is too difficult or risky to continue using PSCs.
- End hirers may decide to continue to use PSCs but remove the liability risk deducting tax and National Insurance before passing the net payment onto the PSC.
This is why it is so important to start talking to your end hirer about how they anticipate responding to the new rules. Forewarned is forearmed, as they say.
With advance warning, you can decide if you are going to accept your end hirer’s status determination or challenge it through appeal.
If you challenge the status determination, you will need to put your reasons in writing and your end hirer will need to respond within 28 days.
In the meantime, you should take advice from your specialist contractor accountant at K&B Accountancy as there are a number of steps you may need to take to mitigate the impact of being deemed ‘inside’ IR35. In particular, it will be important to ensure you do not overpay your own salary from your limited company as this may attract higher rate tax if your end hirer does indeed decide to pay your PSC only after deducting tax and National Insurance contributions at source.
You will also need to be aware that it will not be possible to claim tax relief on expenses if your end hirer changes your status from outside to inside IR35, so you will need to look at whether and how you would be financially impacted by this change. If your status is changed part way through your financial year, any legitimate business expenses will need to be either carried forward to the future to offset future profit, or carried back to offset last year’s corporation tax.
If you are going to be adversely affected by an ‘inside’ IR35 status determination, you may be able to mitigate the impact by negotiating a higher rate for your assignments. In this case, it’s a good idea to speak to use to find out what the uplift would need to be so that you are not worse off under the new rules.
To find out more about the reforms to off-payroll in the private sector and how you can prepare, please get in touch with our team of specialist contractor accountants.