Just 2 months left until the IR35 reform: what do contractors need to know?

Caunce O'Hara & Co Ltd Logo
Written by Caunce O'Hara
Last updated February 4, 2021

On the 6th April 2021, the IR35 private sector changes will come into effect.

With this date now just a matter of weeks away, it’s important for contractors to understand what the changes involve and how they could affect them.

In this article, we will summarise what IR35 is and what contractors need to know about the upcoming private sector reform.

For a full and comprehensive guide, download our free Contractors’ IR35 Guide. Written by IR35 experts, this will explain everything you need to know.

What is IR35?

The Intermediaries Legislation, known as ‘IR35’ or ‘off payroll working rules’, came into effect in April 2000.

It was created to tackle what HMRC perceived as ‘disguised employment’; contractors engaged through their own limited company (often referred to as a Personal Service Company or PSC) or through a partnership (the “intermediary” of the legislation), but providing services which were indistinguishable from the work undertaken by an employee.

By contracting through a limited company, rather than being hired as an employee, there were benefits for both the contractor and employer, but the Treasury was also losing tax and National Insurance Contributions because it was not collecting PAYE on engagements that seemed closer to an employed relationship than they did to self-employment.

What do contractors need to know about the IR35 changes?

Currently in the private sector, it is the responsibility of contractors to determine their own IR35 status.

After 6th April 2021, it will be up to the end client (the company obtaining the services of the Personal Service Company contractor), to make the decision on whether the contractor is working inside or outside of IR35.

That is unless the end client is defined as a small company, one which meets at least two of the following requirements:

  • turnover of less than £10.2m a year
  • balance sheet assets of less than £5.1m
  • fewer than 50 employees

For these businesses, nothing will change. The IR35 status determination will remain the responsibility of the contractor – as will the tax liability if the contractor gets it wrong.

Medium and large sized end clients will be responsible for:

  • making an IR35 decision;
  • creating a Status Determination Statement (SDS), which outlines whether IR35 applies and the reasons for the decision;
  • communicating that decision to the relevant parties; and
  • creating a ‘client-led disagreement process to deal with any challenges to the SDS.

The legislation requires this to be done for each and every engagement and HMRC guidance states that reasonable care must be taken when making the status decision.

This means that blanket decisions on groups of contractors, instead of assessing contractors on a case-by-case basis, will likely fail to demonstrate reasonable care and could lead to the end client being penalised.

Just 2 months left until the IR35 reform: what do contractors need to know?


What do contractors need to do before the IR35 private sector reform?

Although contractors will not be the decision-maker in the vast majority of engagements, they do have an opportunity to influence the end client and should certainly talk with their end client and agency to understand the engager’s thinking.

Those engagers who take the legislation seriously because they are keen to retain the best contractors may well listen to a well-presented and properly documented argument, but we do acknowledge that ultimately it will be the engager’s decision.

  • Have your contract reviewed.

If your current engagement is likely to continue beyond April 5th, it would be sensible to have it reviewed by an independent specialist.  A comprehensive review will consider both the contractual terms and the working practices, as well as whether you demonstrate that you are genuinely in-business on your own account and taking financial risk.

The report will offer a clear opinion on the engagement. If this results in an ‘outside’ opinion now and the engagement is continuing on the same basis, then there is a strong argument for it to be treated outside moving forward.

You can find out more about our IR35 Contract Review Service here.

  • Challenge the SDS if you disagree with the decision.

If the client takes a different view when issuing their SDS, the legislation requires there to be a disagreement process allowing you to challenge the SDS; and the client must provide a reasoned response within 45 days.

The end client must either confirm the existing decision, with reasoning, or issue a new SDS, explaining the reasons for the change of decision.

If you decide to do this, it’s worth spending time preparing a response with evidence to support your view. You may also want to use the services of your accountant or tax specialist to carry out an independent review of your engagement.

This will add credibility to your argument and could also highlight where a client may not be taking reasonable care in arriving at their decision.

We expect to see significant numbers of ‘inside’ decisions to be challenged and it will be interesting to see what percentage will be overturned by the client. Unless HMRC scrutinise these disagreement processes as part of their future IR35 compliance, we may find that contractors will have little faith in this element of the legislation.

IR35 after April 6th 2021

Once the legislation has bedded in and new engagements arise, it is likely that they will be advertised as either ‘outside’ or ‘inside, meaning that contractors applying for roles will do so knowing whether the engagement pays gross or net.

It seems unlikely that a contractor applying for a new engagement on the basis that it is ‘inside’ will then seek to challenge the decision.

The odds seem to be stacked against the contractor, particularly with the kneejerk reactions we have seen from some end clients, either taking a hard line and when in doubt determining ‘inside’ or seeking to avoid making IR35 decisions altogether.

However, for end clients this is unlikely to produce long-term benefits when other engagers start to recognise that working within the legislation can lead to justifiable outside determinations and the retention of the best contractor talent.

A final note for contractors

For contractors the answer is to be patient and be the best contractor you can be. Those with the skills, qualifications and experience who also demonstrate that they are in business on their own account will pick up these outside engagements.

The UK economy is based on a flexible labour force and whilst contracting will inevitably change, the off-payroll legislation in the private sector absolutely does not spell the end of PSC contractors.

Caunce O’Hara offer a range of IR35-based insurances and an IR35 Contract Review service. Through our partners at Markel Tax, we can also offer you expert advice regarding IR35 taxation.

For further information please call 0333 321 1403.


You can read up-to-date news about IR35 here

Caunce O'Hara & Co Ltd Logo
Written by Caunce O'Hara
Last updated February 4, 2021

Related IR35 content

HMRC launches consultation into IR35 ‘double taxation’

HMRC has confirmed that it has launched an 8-week consultation on plans to roll out a legislative tweak that could…

Read more

Heigh-ho, heigh-ho, it’s back to Chapter 10 we go!

The vast majority of limited company contractors would have gone to work with a spring in their step when they…

Read more

Plans to repeal IR35 scrapped by new Chancellor

It’s been an eventful few weeks in UK politics and for the UK economy. With the pound struggling against the…

Read more

Off-payroll working legislation IR35 reforms to be repealed from April 2023

On Friday 23 September 2022, as part of his mini-budget speech, the Chancellor of the Exchequer, Kwasi Kwarteng, committed to…

Read more

More tax avoidance schemes identified by HMRC

At the end of August 2022, it came to light that HMRC had identified three more tax avoidance schemes as…

Read more

Will the new prime minister amend IR35?

On 5 September 2022, Liz Truss was elected – with 57.4% of the vote – as the new prime minister…

Read more

Top TV stars to pay more tax and potentially lose some freedom in contract crackdown

Broadcaster set to force their top TV stars to work PAYE In a recent story published by The Sun1, it…

Read more

IR35: Private sector firms warned of potentially large HMRC penalties on the horizon

HMRC confirmed it would take a “light touch” in regards to enforcing the new IR35 rules for the initial 12…

Read more

IR35 one year on. 60% of contractors report drop in income.

The results are in! Firstly, we’d like to say thank you to everyone who got involved in our IR35 survey,…

Read more

Contractors could be entitled to reclaim tax if IR35 is misapplied

In recent articles by ft.com and contractorweekly.com, it has come to light that HMRC has acknowledged that contractors could be…

Read more

Investigation into the IR35 reforms launched by the National Audit Office (NAO)

A recent report by the National Audit Office (NAO) has stated that Her Majesty’s Revenue and Customs (HMRC) faces new…

Read more

Seven year nightmare over for presenter Adrian Chiles as Basic Broadcasting Limited wins IR35 appeal

A positive IR35 case ruling has been made for presenter Adrian Chiles and his media company Basic Broadcasting Limited, after…

Read more

Umbrella consultation underway

Umbrella company consultation The government has launched a consultation into the role that umbrella companies play in the labour market…

Read more

Former SKY Sports presenter landing with heavy IR35 tax bill

Former SKY Sports presenter loses IR35 tribunal appeal Former SKY Sports presenter Dave Clark has lost his IR35 tribunal appeal…

Read more

Blanket contractor IR35 decisions U-turn by Network Rail

Computerweekly.com recently reported that Network Rail appears to have performed a U-turn of its IR35 blanket decisions for the rail…

Read more

HM Courts & Tribunal Service becomes the third government department to be hit with IR35 tax bill

Government departments have been in the news recently for their incorrect assessments of the employment status of their contractors in…

Read more

Home Office hit with huge IR35 tax bill

It has recently emerged that the Home Office has been hit with a £33.5 million IR35 tax bill after a…

Read more

DWP hit with huge tax bill for historic IR35 contractor status assessment errors

It has emerged that the Department for Work & Pensions (DWP) was hit with a huge £87.9 million tax bill…

Read more

IR35 private sector changes to go ahead next week

Changes to IR35 in the private sector will go ahead on 6th April 2021, despite hopes for a further delay….

Read more

Kaye Adams wins case and is ruled outside IR35 due to being ‘in business on own account’

A case that will be welcomed by PSCs In a landmark IR35 case that will be welcomed by PSCs, but…

Read more

UK Supreme Court rules that Uber drivers are workers not self-employed

Thousands of Uber drivers could be entitled to minimum wage The Supreme Court’s unanimous decision should come as no surprise…

Read more

Private sector IR35 soon to be reality

On April 6th 2021, the contractor’s worst scenario will become reality… IR35 in the private sector will finally go live….

Read more

Just 2 months left until the IR35 reform: what do contractors need to know?

On the 6th April 2021, the IR35 private sector changes will come into effect. With this date now just a…

Read more

The blanket approach to IR35

The delay in the introduction of the IR35 legislation allowed contractors and their clients extra time to prepare. It also…

Read more

IR35 news: Eamonn Holmes loses his IR35 case against HMRC

Holmes, a broadcaster for over 40 years, was providing his services through a limited company called Red, White and Green…

Read more

HMRC “kicks back” in latest IR35 case

HMRC “kicks back” at Upper Tribunal in latest win against Paul Hawksbee In July 2019 we saw the fight between…

Read more

Off-payroll working in the private sector

IR35 is coming Despite the protests and lobbying of the Government, the only reference in the Budget notes makes it…

Read more

The impact of finance sector IR35 decisions on contractors

IR35 reform to the private sector was already having a negative impact on contractors working in the finance sector prior…

Read more

Lord’s committee expresses concerns over IR35

IR35 off-payroll reform was due to be rolled-out to the private sector on April 6th of this year, but due…

Read more

Suggestions to move IR35 reforms to 2023 are rejected

Amendments to the IR35 private sector are set to go ahead from April 2021, despite suggestions from a Conservative MP…

Read more

COVID-19 and IR35: Should your clients relax now the legislation is postponed?

Changes to off-payroll working in the private sector delayed 12 months Steve Barclay, the Chief Secretary to the Treasury, announced…

Read more

11th hour delay for IR35 private sector reform due to COVID-19 welcomed

The Government has delayed its controversial IR35 private sector reform by one year, until April 2021, because of the COVID-19…

Read more

No delay to IR35 rollout as the Government launches off-payroll review

The Government launched its off-payroll review on January 7th with regards to the implementation of the changes to the off-payroll…

Read more

What are the political parties saying about IR35?

The changes that will alter how freelancers’ taxes are assessed In April 2020 the contractor and freelance community are set…

Read more

Six reasons for PSCs to be proactive to respond to the IR35 private sector changes and not wait until April 2020 to do so!

Since April 2000, the Intermediaries legislation has made the individual contractor trading through his/her own Personal Service Company (PSC) the…

Read more

What impact will IR35 reforms have on North Sea operators?

With high levels of talent engaged through off payroll structures in the energy sector, the North Sea operators will feel…

Read more

Are you ready for IR35 changes?

Proposed changes to IR35 legislation could mean thousands of contractors may pay more tax. With the Government’s consultation on contracting…

Read more

IR35 and CEST Update

The IR35 story continues to rumble on taking twists and turns along the way and most of us believe it…

Read more

U-Turn on Self-employed NIC but no change to Public Sector rules on IR35

The ink has yet to dry on Philip Hammond’s first budget as Chancellor but his proposed national insurance increases for…

Read more

IR35 Products & services

Caunce O’Hara’s partnership with Markel enables us to offer a broad range of IR35-based products to protect contractors, fee-payers and end clients across the UK.

IR35 Hub Related IR35 content