IR35: Put Away Your Umbrellas
If you're a freelance contractor / professional, you're probably thinking about or already really looking forward to being able to continue to sell or switch to selling your services in a way that fairly reflects the risks you expose yourself to, via your limited company and Outside IR35, once the reforms are repealed in April 2023. This represents a substantial financial benefit for many sectors, including IT, business consulting, locum doctors or pharmacists, the construction sector, HGV drivers, and film, TV, and other media professionals.
In doing so, you need to be acutely aware that you will be wholly responsible and accountable for ensuring and evidencing robust outside IR35 status for your engagements with clients.
If you do not take steps for each engagement to do this, you risk encountering and losing a dispute with HMRC that has been known to cost contractors tens of thousands of pounds and even into six figures. There are some key areas you can focus on that will help you to ensure you are fully compliant and not at risk:
- Since April 2021, IR35 assessments and status determination statements have become such an integral and instrumental part of the contractor engagement compliance process, that their absence now will likely be viewed as a glaring and serious omission in the event of any scrutiny by HMRC. Even if you didn't used to conduct assessments prior to April 2021, you should seriously consider doing so in future. Why not see how your current or one of your typical contracts might fair by putting it through its paces in our simple-to-use, explicitly guided assessment tool?
- There are multiple paths to an outside IR35 status conclusion in our tool and a right of substitution is not obligatory in generating such a conclusion. However, a right of substitution is the singularly most powerful driver of an outside IR35 status. It's the LAW. Its presence obliterates any notion of the existence of a personal service, therefore rendering an engagement 100% a contract FOR SERVICES and outside IR35, and NOT a contract OF SERVICE akin to employment. There are those that will tell you it is a loophole or a sham and if you can't back it up with capability and intent, they'd be right. With 34square, you CAN, and they'd be wrong.
- Right of Substitution is the first area HMRC attacks in any dispute. Out of 36 IR35 appeals tribunals we reviewed, 26 cases had weak rights of substitution, many with lines in contracts. In deliberation and witness testimony, HMRC is adept at breaking the right apart, either because the right is too restricted or fettered, or perhaps because witness testimony contradicts the contract content. Sometimes back to back contracts aren’t sufficiently aligned. Or it could simply be that there's insufficient evidence of any intent or capability. HMRC won 17 of those 26 cases with an absence of a strong right of substitution and/or feasibility to execute in line with their stipulations. Read the full blog about the power of 34square to immunise you from this HMRC attack.
34square can uniquely help you with BOTH of these critical areas:
- Our subscribed members can perform a robust, simple-to-use, explicitly guided IR35 assessment process and generate and store a detailed, explicit Status Determination Statement for each engagement.
- You can also render a Right of Substitution in your contract essentially unchallengeable with our ground-breaking substitution process, including an innovative legal contract process automation capability and an optional Right of Substitution Declaration. Read more here.
You CAN buy insurance as part of your strategy, but bear in mind it will ONLY cover your legal costs and not any resulting back tax or NI contribution. Neither will it compensate you for the inevitable disruption, stress and loss of income caused by responding to such disputes and potentially having to deal with court appearances.
HMRC takes a risk-based approach in targeting disputes, which means they only pursue the ones they believe they have some chance of winning. Join 34square and you'll help yourself and help them, by removing any ambiguity and putting yourself in the absolutely pointless category!
34square is committed to fuelling a thriving, compliant and credible outside IR35 channel for Personal Services Companies and for genuine freelance contractors that forego all of the security and protection of permanent employment the vast majority of people desire and covet, instead living day-by-day with the very real risks associated with running a business.