Skip To The Main Content

How to prepare for IR35 changes

The intermediaries Legislation – known as IR35 or off-payroll working rules – is designed to ensure independent contractors who are working in the same way as employees pay the same income tax and national insurance as employee counterparts.

It used to be up to the contractor– an individual working through an intermediary, typically their own company – to determine whether they were self-employed and therefore not liable for the taxes that apply to employees. However, times have changed. In the public sector, it’s now the engager’s responsibility to determine worker status – a switch that’s set to take effect in the private sector, too.

How can you ensure that your clients, agencies and HMRC continue to see you as an
independent contractor, rather than as an employee in all but name and thus within IR35? It’s a tricky business. IR35 disputes have been known to last years if they reach the courts.

HMRC itself admits that its Check Employment Status Tool (CEST) is not 100 per cent reliable.

A good starting point is to think about the three Ms: mastery, me, and mutual obligation.

Mastery

A genuinely independent contractor has freedom in the workplace: they specifically have
control over how, when and where they work.

If your client is dictating your ways of working, that will set HMRC’s alarm bells ringing. Make sure any contracts you sign allow for sufficient liberty in the workplace, and steer clear of being assigned a specific office or staff pass.

Your agreement should not prevent you from working for more than one client at any given time.

If you are regularly juggling multiple clients, that’s always a positive in this context.

Me

Is your client specifying that they only want you? If they are, you could be in trouble. If it’s a genuinely freelance, short-term contract, you should be able to demonstrate that
someone else could take your place.

Any contracts you sign should not prevent this from being the case.

Mutuality of obligation

If you expect your client to offer work and they expect you to take it, that is starting to look and very much sound like a conventional employee/employer relationship.

Your contract should not allude to automatic renewals or expectations to accept additional work beyond the project you’ve agreed to complete.

What if my client says I’m an employee?

Have an upfront conversation with your clients about the implications of new IR35 parameters.

The draft legislation envisages an appeals process if you believe that the engager’s
decision is incorrect.

Engagers must take ‘reasonable care’ when making the decision on the IR35 status of
an engagement and provide you with a thorough explanation of why they’ve reached their conclusion.

If they fail to do this, any tax burden they pass on to you becomes their responsibility.

If you disagree with your client’s assessment, they must provide a further explanation of their decision within 45 days. And, remember, through the Business Essentials package,
you have 24/7 access to our legal advice helpline and also access to the FSB tax advice line.

You should also speak to the team at FSB Insurance to discuss what other cover would be helpful.