6 myths about IR35
The Liquid Friday teams, both at Head Office and out on the road, talk to hundreds of contractors and recruiters up and down the country every week.
Currently the topic on everyone’s lips is, you guessed it, IR35.
The following 6 myths about IR35 aren’t likely to come up in a Google search (although plenty of others do), and that’s because they are genuinely things which contractors and agencies have spoken to us about, believing them to be true.
Myth #1 Private sector IR35 changes may not happen
Unless you’ve been living under a rock, you’ll be aware of the Government’s plan to extend the IR35 off payroll rules to the private sector in April 2020.
From then, responsibility for determining the IR35 status of a contract switches from the individual contractor to the client. It’s set to mirror the public sector reforms of 2017, but with some key differences.
With draft legislation published on 11th July 2019, the changes look like a shoo-in, with Boris Johnson’s cabinet too consumed with trying to avoid a Brexit crash-landing to worry about re-drafting tax legislation.
Prior to December’s General Election, Chancellor Sajid Javid did make a promise to review the reforms, and has delivered this on the face of it, with a review announced in January 2020. But this gave no indication that the changes will be delayed, or even altered. Instead the review will focus on the implementation of the rules.
Myth #2 All contractors need to worry about IR35
Nope! IR35 only applies to contractors providing their services through LImited Companies (also known as Personal Service Companies – PSCs)
If you are an umbrella company worker, direct PAYE employee, CIS contractor or sole trader – you are outside of scope of the IR35 rules. Go and put the kettle on, nothing to see here.
Myth #3 If there is control, the contract is automatically caught by IR35
There are 3 core tests of employment status for tax, and these have evolved over decades of IR35 case law.
We have found that it is often presumed that if a contractor’s work is controlled, it must mean that the contract is caught by IR35. This isn’t necessarily true.
Even when there is control, if there is no Mutuality of Obligation and there is an unfettered right of substitution, the contract is likely to be outside of IR35.
And talking of substitution…
Myth #4 Agency replacements count as substitution for IR35
It’s fairly common for an agency to be able to send a replacement, if, for whatever reason, the PSC contractor is not able to do the work.
However, this does not count as a right of substitution for IR35.
For there to be an unfettered right of substitution, the PSC itself must be able to send a substitute to complete the work. This must be reflected both in the contract and in real working practice.
Myth #5 Long contracts are all caught
It is true that the risk of a contract being IR35 caught increases with time – the contractor becomes part of the workforce and the relationship can start to look like one of employment.
There is a but! The length of a contract in itself does not indicate IR35 status.
However long a contractor is on a particular job, there must be Mutuality of Obligation, control and no right of substitution for a contract to be caught by IR35.
Myth #6 Putting a worker on a SOW puts them outside IR35
Statements of Work are not a get-out-of-jail-free card for IR35.
It is true that supplies of genuine Statement of Work style services (in other words not labour or the supply of personal services) are exempt from IR35.
But simply labelling something as a SOW will not cut any mustard – all documentation must reflect what happens in reality.
Talk over your IR35 concerns
IR35 is big and it’s looming. But you are not alone. We’ve helped thousands of contractors, agencies (and their clients) steer a path through IR35, with bespoke advice, training and risk-mitigating solutions.
It all starts with a chat. Call us on 02392 883300 or contact us to request a call back.
This article was originally published on 6th August 2019 and updated on 13th January 2020.