You may be concerned about your tax status, once the changes are implemented. Knowing whether your work falls ‘inside IR35’ or ‘outside IR35’ will be crucial for anyone in contract employment when the changes are made on 6 April 2020.
IR35 is important for several reasons – but is mainly designed for HMRC to ensure that self-employed and employed workers are paid the same amount for similar work. Companies pay 13.8% National Insurance (NI) for each employee and none for self-employed workers. Some individuals claiming to be contractors have been found to be ‘disguised employees’ - this could be avoided with new changes.
HMRC updated its Check for Employment Status for Tax (CEST) tool in 2019, ahead of the reforms, to streamline the process and make it easier for you to understand your own status.
Chancellor of the Exchequer Sajid Javid, announced in January that a review into the new changes had commenced. However, concerns have been raised over how effective a three-month review could be. The fast-approaching reforms will be implemented regardless of the review’s findings.
Outside or inside IR35?
The reforms will put the onus on employers or end-clients to determine if a worker is an employee or a contractor. Once the changes are implemented, contract workers in the private sector could be deemed employees by the businesses they work for and end up paying more tax than before.
A status determination statement must be issued by an employer or your firm, and they must provide their reasoning. You can appeal these decisions, and your end-client can decide to change their conclusion.
Overall, it’s vital you prepare your clients’ finances, and your own, to be tax compliant, in order to navigate the changes well. It is a complex determination for companies to make, as any individual may have multiple tax or employment statuses. Those with multiple contracts could fall ‘inside IR35’ on one contract, but ‘outside’ on others.
It is essential that accountants understand the complexities of the reforms, as contractors will look to you to answer their questions. A full understanding of the new IR35 rules will make you a desirable accountancy candidate.
Staying successful post IR35 reform
The new reforms have concerned many contractors who would rather join PAYE employment after the change. The extra administrative effort could also result in fewer employers hiring contractors. However, this won’t be the end of contract work. The gig economy is thriving, and temporary/contract work promotes good work-life balance, which can be far more desirable than just remuneration.
There are still benefits to being a contractor, such as being your own boss and choosing your own holidays and flexible hours. Contractors can also delegate tasks, which is another way to tell if a company sees you as an employee or a contractor.
Exceptions
If the company you’re working for is small enough to be exempt from the changes, your work will be exempt from the IR35 rules.
Small businesses in the private sector are exempt from IR35 reforms, if they meet at least two of the following criteria:
Less than £10.2 million revenue a year
Fewer than 50 employees
A balance sheet totalling less than £5.1 million
Accountants and finance professionals will always be needed, in every sector, to provide businesses and contractors with the help they need to stay tax compliant. Contractors will always be useful to companies who need cover or temporary employment workers and you will continue to be in control of your own work.
If you’re looking for a talented candidate, or career opportunity in the accountancy and finance sector, find your nearest Reed office.
