IR35 Reform 2021 Case Studies

IR35 in the Private Sector: preparing for April 2021

With IR35 Private Sector legislation reform due to roll out in April 2021, there’s already speculation about how the industry will react and what the implications will be for contractors. We’ve partnered with Contractor Accounting Specialists Intouch Accounting to bring you advice on getting ready for the reforms, and case studies showing success stories in the Public Sector that we can all learn from.

IR35 in the Private Sector: what’s occurring

The key change taking place after 6 April 2021 is a shift in the responsibility for determining employment status. But what is it likely to mean in practice for contractors? Well, there’s still a lot to be confirmed, but the main implications are likely to be:

1. It will no longer be the responsibility of the director of the personal service company (PSC) to determine their IR35 status. This will become the responsibility of the end hirer (client), but only where the end hirer is a large or medium sized business (this is yet to be defined).

2. The actual method by which status is assessed is not changing, so if a contractor is legitimately outside IR35 today, they should continue to be outside IR35 post April 2021.

3. The end hirer will need to exercise “reasonable care” when determining the IR35 position of any contractors engaged via a PSC.

A further consultation is expected in the next few months to help shape the precise changes, with the Government already conceding that there’s the need to refine the design of the reform.

Refinement around the definition of and enforcement of ‘reasonable care’ would certainly indicate that blanket bans on the use of PSCs will not be an option. The same will apply to blanket IR35 assessments (for convenience and/or to reduce effort), as we saw at the start of the Public Sector reforms.

Adapting for the reforms

The positive news is that, assuming the details are nailed down, there will be time for the Private Sector to consider their options, to learn from Public Sector experiences and to be ready for the reform. And there’s good reason to believe that there will be a more measured approach to IR35 from both HMRC and end clients, leading to a more collaborative approach aimed at retaining the valuable contractor workforce that keeps the UK economy running. In short, the Private Sector, and the Government, simply can’t afford to make the same mistakes again.

As a contractor, come April 2021, you may need to be in a position to produce ‘proof’ of your IR35 status, backed by a professional/legal entity in order to positively influence client decisions. By doing some of the legwork, you can help provide the ‘reasonable care’ element for your client and perhaps educate them in how to do that for themselves. Aligning yourself with a good accountant to provide this proof, and to help influence further up in the supply chain will stand you in good stead.

Public sector learnings: case studies from the coal face

Challenging as it has been, there are plenty of learnings from going through the Public Sector reforms; Intouch Accounting share some success stories here:

Win-win for contractors and clients taking professional advice

Prior to the IR35 Public Sector changes coming into effect in April 2017, this company (who provide) specialist secondment services approached our Group Legal Services division for assistance. The Company wanted to protect its contracting workforce through the reforms, whilst ensuring that it carried out its own IR35 review duties to the highest standard. Recognising that this was fundamental to their ongoing efficiency and success, the Company instructed Brookson Legal Services to review over 100 contracts and working practices in respect of the contractors engaged, many of whom provided services to councils and government agencies.

BLS advised the Company on how it should treat contractors and proposed changes to the working arrangement between the Company, Contractor and Client to ensure the contractors were seen as truly independent and any risk to the Company was significantly reduced.

By working with professionals and getting ahead of the legislative change, the Company saw very little impact on their business come April 2017, and have the paperwork and backing to prove ‘reasonable care’ should they have to.

Contractors take control of IR35, with professional help

By taking control of his own destiny, this IT contractor was able to influence the client’s decision and remain outside IR35:

“After making a move from a permanent role into a contract role a number of years ago, I always operated via my own Limited Company as this was the most tax efficient and flexible way for me to complete my assignments especially when working for multiple clients. I have had numerous IR35 reviews via Brookson Legal Services over the years and always been satisfied this was the correct way for me to operate.

When the rules changed for IR35 in the Public Sector I was surprised that some of the clients I completed assignments for had made a decision not to use contractors using Limited Companies due to them being at risk, I questioned this decision and their understanding of IR35 and the new rules seemed to lead to confusion.

I utilised my IR35 review from Brookson Legal Services to explain to my client that I had checked my eligibility and contract and that the legal opinion was that I could work via my Limited Company. I have since been able to continue contracting in the same way and have been able to keep using my Limited Company.”