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IR35 checklist for contractors

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Last updated July 15, 2020

HMRC have identified a compliance problem – they believe that only 10% of all contractors who should be treating their engagements as ‘caught by IR35’ are actually doing so.

HMRC believe that number should be closer to a third of all engagements and that the planned changes to IR35 in the private sector could bring in an extra £3billion for the Exchequer.

On the face of it, from 6 April 2021, the change removes the responsibility for IR35 status decision-making from contractors who are engaged by medium and large businesses, making them vulnerable to processes created by others above them in the chain.

However, contractors can still influence that decision by looking after their own interests and that should start now by having their current engagements reviewed.

To demonstrate this, we’ve created an IR35 checklist of the reasons to get prepared ahead of time.

  1. Even though it might appear that, in the short term, nothing changes for Personal Service Company contractors (PSC’s), you are still the decision-maker and the entity which will suffer the tax liability. If you get it wrong, HMRC won’t just want to tax you; they will want interest and will want to know how you reached that decision.  If you can’t show due diligence, then expect a penalty of at least 15% of the tax at stake.
  2. That responsibility will still continue after April 2021 if your Personal Service Company (PSC) is engaged by one of the UK’s smallest 1.5 million businesses as defined by the 2006 Companies Act.
  3. HMRC have suggested that they are keen that decisions made are forward looking and they will not immediately assume that an engagement which is caught after April 2021 was caught before. But, they haven’t categorically ruled out that they won’t look back in time. So it definitely makes sense to know where you stand now.
  4. When the decision-making process changes for medium and large sized businesses, agencies and end clients will want hard evidence – not emotional pleas – to be convinced that an engagement is ‘not caught’ by IR35. Well-reasoned evidence with a clear conclusion as well a documented argument to convince the agency and the end client to agree the ‘not caught’ opinion.
  5. If HMRC challenge the decision, it is much harder for them to win their argument if all parties have agreed the status decision, based on a clear, independent assessment.

As a contractor operating through a PSC, you can’t afford to wait until April 2021 to deal with the changes in IR35, you need to fully appreciate your tax position, now.

Author: Markel

Caunce O’Hara offer a range of IR35-based insurance products, including IR35 Contract Reviews and Tax Enquiry & Legal Expenses insurance. For further information and a quote call 0333 321 1403 orclick for a quick online quote.


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Last updated July 15, 2020

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