During this week's budget, it was announced that from April 2020 the tax liability for incorrect IR35 assessment will be with the employer rather than the individual contractor.
As a professional, I feel it that is the right thing to do to make my client aware of the change and to help them prepare.
This article goes through the steps I am following in helping my clients prepare.
A Word of Warning
Do not make decisions on your clients behalf.
By all means provide your options and personal advice - but always stress that it is the clients responsibility - not yours.
Basically, avoid a situation where you could be held liable by the client for advice that was later found to be incorrect.
Why bother?
Let's be honest; part of this is self serving.
The smoother a client adapts to the change, the more likely any engagement I have with them will continue.
There have been plenty of horror stories from the public sector implementation that, due to knee-jerking, poor are made decisions for both themselves and the contractor. Unfortunately, in a lot of those cases, the engagement has been disrupted - even ended - before common sense prevailed.
By helping them to understand the change and (hopefully) smoothing that transition it will help avoid those knee-jerk decisions.
Plus I actually like to be able to provide "value adds" to the service I provide. I've found that I understand the IR35 rules better than most contractors and agencies - so it makes sense to share that knowledge.
What is the change?
From April 2020; tax liability for incorrect IR35 assessment will be with the employer rather than the individual contractor.
Currently, each individual contractor will evaluate and decide if they fall within the IR35 rules (are they a disguised employee). Outside of IR35, a contractor will largely pay themselves through dividends. Inside of IR35, a contractor will largely pay themselves through PAYE. The former method increases take home around 10-20%. Currently, the contractor is liable for lost HMRC revenue if they make the wrong decision.
From April 2020, the client will have to: * Assess every contract role as inside/ outside of IR35 * For those inside IR35, deduct income tax and employee NICs and pay employer NICs * For those outside IR35, ensure the working practices are in line with their liability/ risk assessment
Do your research
Before talking to your client; try to get a clear idea of it yourself.
You don't need to be an expert. If anything, you actively want to avoid being considered an expert. This is about you assisting your client to understand the change and to make their own decisions (re-read "A Word of Warning" above).
Certainly read the these two articles:
https://www.gov.uk/government/publications/off-payroll-working-in-the-private-sector-ir35-budget-2018-brief
https://www.qdoscontractor.com/news/2018/10/30/ir35-reform-set-for-2020
You should then consider you're own IR35 assessment. You (hopefully) will have gone through a review of contract and working practices when you took the role with the client - revisit your thoughts and be prepared to shared that thought process with the client.
Be prepared, when the time come, if the client arrives at a different assessment. You will need to remember this is their risk - not yours - thus ultimately it will be their call.
There is a requirement for the client to apply "due care" in their assessment. Certainly when applied in the public sector, horror stories have circulated about "blanket determinations" being made to avoid both the assessment effort AND any liability. And while the client is expected to apply "due care" - I suspect it will be difficult/ time consuming/ expensive to obtain redress.
Ultimately, if you don't like the clients assessment, I expect your only option will be lump it or move on.
A key reason for starting the conversation early is attempting to avoid knee-jerk reactions.
Let them know
And then simply raise change to them (the text under the "What is the change?" should be enough).
Ideally try to get this across in a one-to-one - but if that isn't available, then a simply email to the relevant line management should be enough.
Make sure they are aware that you are happy to go through the change as you know it - and then leave them to it.
Largely it is then up to them. Otherwise I'd certainly look to raise again as we get closer to April 2020 (maybe from 6 months out) or if you have a renewal that will take you over the implementation date.
Market affects
It will be interesting to see how the change affects the contracting marketing.
I'd expect market rates to increase for those "inside IR35" roles as clients have to maintain take-home pay to remain competitive.
I'd also expect clients to become more savvy in definition of the contract and working practices to benefit from a lower "outside IR35" rate. This is likely to come later as the market matures to the change.
I personally believe however that in the long term it will be better as there will be more clarity.
(Although I do believe that there needs to be another employment category - but that is a whole different conversation).
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