The government has now passed legislation meaning that the IR35 changes, known as Off-Payroll Working, will definitely go ahead in April 2021.
In this in-depth guide, we’ll walk you through the current state of IR35 and the changes coming April 2021. We’ll talk about blanket bans on PSC / limited company contractors, and help you find a way through. Here’s a summary of IR35 from April 2021:
- Off-payroll working rules will be coming in to force in April 2021 – they have passed the major legislative stages.
- We saw turbulence in Q1 2020, and then a delay due to Covid19. We’re expecting more heavy weather ahead due to Covid, Brexit and IR35 changes. The market may be unstable, with a period of adjustment, particularly in large client companies, but it won’t be the end of the contracting / consulting market
- In the medium term, we’ll generally see a two-tier market emerge:
- Low-value, high-supply roles (the Uber drivers of your profession) and certain roles that have the hallmarks of interim employment (e.g. maternity cover) being offered PAYE/umbrella only
- Higher-value, high-demand skills will continue to be delivered via outside IR35 contracts
- HMRC estimates 60% of roles will fall into the latter category (outside IR35), and based on our conversations, if you’re an inniAccounts’ client chances are that includes you
- However, certain cash-rich, risk-averse sectors are likely to remain umbrella only for the foreseeable future. The primary example of this is banking, where we don’t expect any significant change in the short term.
- The advantage of off-payroll working is clarity: you’ll know upfront if you’re inside or outside IR35, and importantly, the end client is on the hook – not you – if it’s wrong. It’s one less major thing to worry about.
- There will be challenges in the short term. That’s because there are 400,000 contractors and consultants to assess, and an acute shortage of people with the skills to assess them
- HMRC’s solution was the ‘CEST’ tool – an online wizard to determine status. But it’s proven to be unreliable, so clients need specialists to do the assessments. These specialists are short on the ground.
- In addition, companies are dealing with the impact of Covid (including changing working practices, workforce safety, depressed trading conditions, etc) and preparing for Brexit. IR35 assessments are likely to be low down the priority list.
- As a result, companies are likely to put contractors in a safe parking lot ie PAYE/umbrella, until they can sort the backlog
- This is particularly prevalent amongst clients that have the greatest number of contractors
- Our advice is to take your time, and don’t do anything rash. There needs to be a period of adjustment, and you could find yourself working via PAYE/umbrella in the short term. This won’t last forever.
- For every client applying blanket PAYE/umbrella rulings, there is a greater number doing fair assessments so consider switching client as the market settles
- Some of our contractor/consultants’ clients are planning on taking some time out in the short term. Is it time to work on improving your property, going on an adventure or simply spending more time with your family?
- But for many consultants and contractors, given the tough market conditions and shortage of contracts, working via an umbrella is better than not working at all.
- If you do find yourself working via PAYE/umbrella, remember the tax advantages of topping up your pension. This could be the year to finally get back on track with your retirement planning
- A word of caution: if you’re currently working outside IR35, and your client puts you onto PAYE/umbrella in the interim for the same role, consider the risk of HMRC declaring everything you’ve done to that point is also inside IR35. You may wish to consider changing your client.
- HMRC has said they’re not going to apply the rules retrospectively, however, in recent years they have reneged on many other promises
- Remember there is also the spectre of a growing deficit in the Treasury due to Covid19 spending by the government – HMRC will be under pressure to help close this gap
