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Off-Payroll (IR35) legislation – STATE OF THE UNION

The new legislation is about to happen from 6th April. Any 11th hour deferrals as we experienced in March 2020 are very unlikely, so I have borrowed the American phrase for the annual message given by the President on the current condition of the nation. So, let’s look at the current condition of freelance contracting.

First the possible good news. To my surprise in the last few weeks, we are finding that some end clients seem to be sidestepping the new rules and issuing contracts now that go past April and paid on a gross payment, but without carrying out status tests to determine whether a contractor is inside or outside IR35

I think that for these end clients, the commercial needs to engage contractors for projects may be what they are concerned about rather than the task risks the new legislation may bring.

As with any legislation, such as the COVID rules, the law requires popular consent. If people don’t keep to the rules, there is a limit on how much can be policed.

If Off-Payroll is not complied with by the consent of end clients to whom the penalties are aimed, then it will be very tough for the system to open loads of tax enquiries to enforce compliance.

The existing tax tribunal system is already clogged up as it is and specialist IR35 tax consultants are ready and waiting for new business to defend end clients in tax enquiries. That won’t make enforcement of the new legislation easy for HM Revenue & Customs (HMRC).

So that’s an optimistic bit of crystal ball gazing, but it’s impossible to know if that’s how things will play out.

Practically speaking, there will be many contractors who have or will be receiving a Status Determination Statement (SDS) advising them that they are inside IR35 and from 6th April, or in some cases earlier, will be considered deemed employees and subject to reduced rates and PAYE tax and NI deductions as employees – resulting in substantial reductions in net earnings. What are they to do?

  1. If you have been given a deemed employee status, you will be offered choices of how to continue work. These will normally be PAYE agency, Umbrella or Deemed Limited. All of these will result in employee-style taxes. However, we have developed an excellent solution for clients continuing to use their own limited companies under the ‘Deemed Limited solution’ and would recommend this is the best method to use. It is the only method that will allow a possible reversal of tax paid if this unfair legislation is reversed in the future. Please click here to see our Deemed Limited Inside IR35 Guide.
  2. Please always send us communications you have received from your end clients or agency to victor@cmeasy.co.uk. We have built up vast experience of how IR35 works and can try and help.
  3. You can look for other work. As mentioned above, there are end clients who are giving out contracts outside of IR35 or IR35 neutral, paying gross invoices without deduction. If you can’t get a full-time contract, you may still get some small contract work, which will help to build up your income streams and may grow into a larger contract or other referrals.
  4. We are seeing some clients get work with small company end clients (less than £10m turnover and other tests) or for wholly overseas (no UK office/branch) end clients. Both of these are exempt from the new legislation. So, you can actively look for work with small or overseas-based companies. At the moment, with Covid and travel issues, many such contracts are home-based without the need for travel.

There are likely to be more shifts and turns ahead and we want to be there to guide you in any way that we can.

So please stay in touch with us, so that we can help you at this time of momentous change in the freelance contracting world.

Many thanks.

Victor Korman
Managing Director
CMEASY


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