There has been substantial press coverage on the changes to IR35 as previewed in the Budget 2018. The change is not to be legislated until Finance Act 2019 so the details are not confirmed but here at Clearways Accountants we do not think it is the catastrophe that some commentators have forecast.
Remember the legislation on whether a contract is inside or outside IR35 has NOT changed. The fundamental analysis of the contract remains unchanged and is dependent on the case law, including cases HMRC have lost!
So what is the change?
At the moment the contractor company (or their accountant) assesses each contract to see whether it falls within or outside the IR35 legislation. If the contract is within IR35 the taxing provisions contained in the legislation must be applied.
Under the proposed change, the end client or the agent will have to make this assessment. HMRC are of the view that contracts are falling within IR35 but are not being taxed accordingly. It is our experience that contract wording is better that it used to be and for most contracts IR35 does not apply.
So what will happen?
I think we can be sure that the private sector will not roll over like the public sector. Equally why should the large consultancy firms experience a bonanza at the expense of small consultancy businesses? And why would corporates pay 5 or 6 times the amount for short-term consultants obtained from big consultancy firms, like Accenture, KPMG and the like, compared to the day rates they pay consultants today?
We believe there are a couple of steps that can be taken to be ready for this change:
- Large companies can streamline their agency contracts and insist on a standard contract between both them (as client) and the agency and also between the agency and the contractor. This contract should have been reviewed and confirmed that the terms and conditions result in the contract falling outside of IR35. The review should be undertaken by a barrister, IPSE or IPSE qualified accountant; and/or
- Individual contractors can obtain a contract review, the report would specify on what basis the contract falls outside IR35 and cites relevant legislation and case law.
The new changes are due to come in from April 2020 – so there is plenty of time to prepare.