The decision to postpone the Off-Payroll Working Rules; known as IR35, due to take effect from 6 April 2020 to 2021, took both industry and contractors by surprise. To many contractors it would appear at first sight a positive decision in that it allows them to continue using their Personal Service Company (PSC) for another year, in most cases claiming to be outside scope for IR35 purposes.
In my opinion this should be approached with caution, for the following reasons:
Many end user clients have already carried out status determinations finding the role a contractor is performing to be inside IR35. The mere postponement of the changes to the regulations by a year does not alter the fact a determination has been carried out, and that determination may be at odds with a PSC’s previously stated “self-determined” position. For a contractor now to merely ignore the fact that the end user client had determined their role fell inside IR35 brings, in my view, a heightened risk of challenge by HMRC to the integrity of the contractors continuing to claim that their role falls outside IR35.
In my discussions with contractors great concern was aired that having been determined to be inside IR35 by the end user client, there was a risk HMRC may seek to reach back beyond 6 April 2020 and examine the basis upon which a contractor had self-determined they were outside IR35 since the inception of their contract; potentially leading to a retrospective tax and NI liability. HMRC indicated had the legislation gone ahead as planned next month that they did not intend, other than in cases of fraud or malfeasance to do so, but their stance may change if a contractor elects to continue to provide services via their PSC that claim to be outside IR35.
End user clients of course have a role to play here; how will they react to contractors wishing to continue to provide their services through a PSC outside IR35 when they have determined the role to be inside it? The feedback we have so far received from clients varies markedly:
Some have said the decision whether a contractor continues to self-determine they are outside IR35 is a matter for the contractor
Others have said they stand by their determination and expect the contractors to provide their services in-line with such
A section has remained silent on the matter suggesting they are waiting to see what the contractors’ reactions are
It would seem sensible, therefore, for the contractor to establish the end user client’s attitude to this before determining their own approach post 6 April.
In summary, there is much for a contractor to reflect on beyond a simple “business as usual” approach. My advice is to consult your accountant before deciding and scrutinise the basis upon which the determination by the end user client was made.
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