Contractors' Questions: How to prepare for April’s IR35 changes?

Contractor’s Question: Now that it’s clear the IR35 changes in the public sector will apply from April, is there anything the contractor sector should be doing in preparation, assuming we all want to avoid being caught by the new framework?

Expert’s Answer: Firstly, it should be emphasised that HMRC has only made a start on the new IR35 tool which will be made available online from the late autumn.

The Revenue has handed out various documents and charts to IR35 Forum members, and these materials set out the department’s initial thoughts on the questions that it currently thinks the tool should ask. The materials also cover how such things as RTI will be operated by recruitment agencies once the IR35 changes take effect.

What’s clear is that these new IR35 rules for the public sector will be going ahead from April 2017. There is indeed a window of opportunity between now and then for everyone affected to plan for these changes.

PSC contractors need to understand their position at their public sector engager although, beyond that, it is difficult for them to plan for the IR35 tool until we definitely know what it contains. Having confidence in the tool is going to be critical to its success.

Meanwhile, agencies and other intermediaries need to get up to speed with both IR35 and the associated but new administration processes. These processes should concern contractors – or their accountants too. For example, those PSC contractors who from April will be caught by the new framework will have to deal with making returns to HMRC that already have had tax and NIC deducted by the agency. So at least new software and a rewrite of their IR35 accounting information looks very likely.

It’s similar for agencies and intermediaries – they’re bound to need to get new software and look to revise their IR35 accounting information. But they’ll also need to put new processes and a greater understanding of IR35 in place, as they will need to deal with those contractors who are outside IR35 under the April framework and be able to efficiently raise this ‘outside IR35’ assessment with the client/end-user, in line with whatever the hirers’ responsibilities to HMRC will finally be.

The above might be a breeze for some big agencies but remember there are thousands of small agencies operating; some run payrolls and some do not so this will be a massive change for these smaller players. All agencies need to understand what their obligations and potential liabilities will be once April arrives. For now, they should consider getting some kind of plan in place; and sharpish.

A crucial starting point is for agencies (and end-users potentially) to evaluate their contractor workforce, and come away knowing exactly who is PSC contracting at a taxpayer-funded body and who is not.

The expert was Kate Cottrell, co-founder of IR35 status advisory Bauer & Cottrell.