Podcast: Taking responsibility for your IR35 status

In this episode of our Proudly Off Payroll podcast, James Poyser discusses how the consulting and contracting industry has changed, and why it’s more important than ever that you take responsibility for your IR35 status.

It’s fair to say that the contracting industry has already changed. The direction of the tide has switched and end clients are once again ramping up their determinations for April 2021. You might think that, with end clients ultimately responsible for IR35 determinations, you can be passive in this. You really can’t. As a contractor or consultant, you need to be proactive, informed and take responsibility for your long-term IR35 status. This isn’t just about your current engagement, it’s about your future as a contractor or consultant and the kind of business you want to run.

Logic would say that as end clients are doing determinations, you are less responsible. At inniAccounts we disagree with this. Consultants and contractors are now under much more scrutiny and are more responsible than ever for driving the determination that’s right for them.

Our podcast, and this blog, discusses some of the things you can do to help deliver the right determination for your business, such as:

• Ensuring working practices are as sharp as they can be
• Managing, influencing and educating stakeholders
• Investing in the right skills to attract the right clients
• Thinking about what your plan is – what is your route through these IR35 changes? How are you going to shape your future as a consultant or contractor?

The choices you make will determine your long-term IR35 status. You may conclude that being outside IR35 is not actually that important to you – this is valid too.

Client’s viewpoint

When we talk about contractors and consultants taking responsibility for being outside IR35, understanding the client’s perspective is an important part of this.

Let’s start by looking from a client’s viewpoint at some of the things that currently feel unfair, such as PSC bans, role-based determinations and CEST assessments. 

From a client’s perspective, hiring someone working outside IR35 presents a tax and compliance risk; the last thing they want is HMRC knocking on their door and enquiring about the contractors and consultants they engage with. For many end clients, their default position will be PAYE only to minimise their legal and tax risks. However, this in turn may lead to a resourcing risk, and they may not be able to find the highly-skilled contractors required to deliver strategic projects.     

This will not happen accidentally, which is where ‘taking responsibility’ comes into play.

Expert advice

We had a conversation with an employment status expert whose work involves helping end clients to determine the IR35 status of their consultants and contractors. They said something we found quite surprising:

Many clients are open to consultations about IR35 status

Their advice is to think about who end clients are willing to have a serious discussion with, and who they are not. 

For example:

• A contractor who is well-informed about IR35, arrives prepared with evidence and a case to prove their outside IR35 status. 
• A contractor who arrives with crossed arms and a “well I should be outside because I always have been” argument.  

Admittedly, there are quite a few contractors and consultants in that latter camp. However, the ones in the former have a much higher chance of influencing their client’s determination of their IR35 status. 

Take responsibility and actively manage

By being informed, preparing evidence, and engaging positively and proactively with your end client, you are more likely to be able to influence their decision making. 

Unfortunately, there is no guarantee and clients may not be open to a discussion. 

However, a recent poll on the Off-Payroll.co.uk LinkedIn page found that 1 in 2 contractors who are outside IR35 actively managed discussions with their client.

Ultimately, it’s about the right mindset. It’s about being proactive and driving the outcomes that you want – thinking of all the things you CAN influence and setting aside the things you can’t.

Developing a Proactive Mindset

In his book, the 7 Habits of Highly Effective People, Stephen Covey introduces the concept of the circle of concern and circle of influence. There are many parallels when it comes to IR35 and the mindset that consultants and contractors need to adopt.

Circle of Concern – IR35

The largest circle contains all of the things that that concern us, from a contractor and consultant point of view:

• PSC ban
• Being pushed inside IR35
• Impact on business/lifestyle
• Finding next client
• Income

Circle of Influence – IR35

Within the large circle, is a smaller circle. This contains all of the things you can actually influence:

• End client’s status determination
• Hiring manager’s status determination
• Rate uplift if you can’t influence end decision
• Direction of business and career – transferable skills, different industries

Stephen Covey talks about the concept of reactive and proactive people.

• Proactive people focus on the things that they can do something about to grow their circle of influence. For instance:
  • Can you as a contractor influence the hiring manager?  
  • Can you influence the end client or agent?
  • Can you start to think about shifting your career and business plans?
  • Can you give yourself options?

• Reactive people focus on problems in the external environment. They tend to have a large circle of concern but a much smaller circle of influence. With an IR35 hat on, example behaviours include:
  • Blaming and accusation;
  • Feelings of victimisation;
  • Conspiracy theories. 

The future of the contracting and consulting industry

When we look ahead to the future of the consulting and contracting industry, it’s clear that being proactive is something that needs to be taken seriously. 

Do you want your IR35 status to vary between engagements? To be down to chance or the whim of an end client? 

Or, do you want to grow your circle of influence and take responsibility for the outcomes you want?   

Being proactive may not help you in this current engagement, but could it help you with the one after? Will it help with your medium-term plans? Will it help you achieve the goals that you want to achieve?

6 Actions for Taking Responsibility and Increasing Your Influence

These tips have come from our conversations with inniAccounts clients and on OffPayroll.org.uk. We are blessed to have a great bunch of very proactive clients and contributors who are doing a great job of getting themselves into a position of being deemed outside IR35.  

1. Increase your knowledge on IR35
   • There is a lot of hearsay around IR35. It’s important that you have a good understanding to engage in conversations about your IR35 status with end clients. 
   • There are some excellent resources available: 
     • inniAccounts client IR35 Action Planner
     • inniAccounts IR35 & Off-Payroll Working Advice Hub 
     • Dave Chaplin’s books and website: ContractorCalculator.co.uk 

2. Assess your current situation
   • Take the time to look at the client’s perspective of your engagement, with a risk-averse lens. 
   • Understand your strengths, working practices and risks, and consider what steps you can take to minimise those risks for the end client. 

3. Tools to help:
   • inniAccounts client Working Practice Assessment tool. It presents you with two views of your employment status: a broad, employment law perspective and a CEST view. This allows you to engage in a productive conversation to highlight the differences between the two views in your determination.  
   • Kingsbridge Contractor Insurance: Working Practice Review Tool
   • IR35 Shield (Dave Chaplin)
   • CEST  Its limitations are well-documented but could highlight potential shortcomings to leverage. 

3. Act early and influence
   • Understand who the key stakeholders are and influence them. 
   • Don’t:
     • Reactively blame ‘clueless’ hiring managers for ticking the wrong box or asking the wrong questions
   • Do: 
     • Be proactive: chat to clients – engage in stakeholder management
     • Be clear about working practices
     • Educate and support hiring managers
     • Do what you can to influence stakeholders, ensuring that both you and the hiring manager are in agreement on the reality of your engagement so that the answers they give to your determination reflect that reality. 

4. Challenge and discuss with confidence
   • Think about the two contractors sat around the table: 
     • One produces clear, compelling evidence. “I need to be outside for x,y,z”. 
     • The other crosses his arms. “I need to be outside because I always have been”
   • Again, you need to be the former, proactive version, building and presenting your case articulately in a way that minimises the risk to the client. 
   • Our inniAccounts Working Practices Tool allows you to add evidence against each question and create a professional pdf to present to your end client. 

5. Stay compliant 
   • Many end clients are engaging in 6-monthly reviews of working practices. If you are outside IR35, expect spot checks and HMRC auditing.  
   • It’s important to keep an eye on your working practices every few months to ensure you are continually using outside IR35 working practices. 

6. Increase your power
   • If you’ve been found inside IR35, think about what you can do to increase your power for your next engagement. 
     • War chest: 
       • Having 18+ months of income could allow you the freedom to say no, giving you time to find the right contract for you. 
     • Can you transfer your skills into another industry
     • Look beyond large clients for alternative ways to engage with other companies
     • Develop niche skills that are in demand from multiple clients
     • Pivot: act like a business, change trajectory to achieve your goals
     • Boutique consultancy firms:
       • Many inniAccounts clients are pushing to become boutique consultancy firm owners. 
   • If you have no other options, it’s going to feel pretty unfair. If you don’t have much influence, you need to decide what you’re going to do. For your own wellbeing, accept it or exit the market. 
   • Acceptance: Step back and think about the things you enjoy about being a consultant. Things like flexibility, a better rate than perms, no management responsibilities, no office politics still apply, even when working inside IR35. 

The final thing to remember that this is an ongoing process. For this engagement, your next and every one in the future, you want to be in a position of power to influence your end client, get the determination that is right for you, and ultimately allow you to run the business that you want.

In our work researching those who are succeeding outside IR35, we’ve collated more advice in our IR35 Action Planner. This is available exclusively to inniAccounts clients, however we have some VIP 24 hour access passes for our followers. 

Simply email hello@inniaccounts.co.uk or contact us on Live Chat for your free 24 hour pass.