What to do if you're declared inside IR35 on April 6th
As you and the entire temporary professional work sector knows all too well, changes to decisions around public sector freelancers’ employment status are incoming fast. But what if these decisions go against you?, asks Andy Vessey, senior tax consultant at Qdos Contractor.
Be in no doubt. On 6th April 2017, the responsibility for determining employment status will shift to the public sector employer, and no longer be up to the limited company freelancer /worker themselves.
Confusion is growing among public sector 'Ltds' already engaged ‘in-contract.’ What happens if you’re declared inside IR35 by your public sector employer, for HMRC then to come after you?
Because you’ve been declared inside IR35 by your current public sector employer, that isn’t to say HMRC will automatically look into previous contracts you might have worked in, either in the public sector or the private sector for that matter. Past projects aren’t automatically included in HMRC’s review.
It all depends on HMRC’s risk assessment and resources. While HMRC only has resources to commit to 250 new IR35 enquiries every year, it’s worth knowing that your past assignments with the same public sector body could well be investigated pre and post 6th April. Naturally, they want to get a better understanding of your working relationship and agreements.
We also know from the consultation document published last year that there will be a statutory right to appeal against the tax and NIC liability where a freelancer contractor is found to be caught by the new rules.
You, the incorporated freelancer, will be able to request a formal review of the decision, and to appeal it to a tax tribunal just like any other PAYE and NIC case. At the time of writing, no further information has been given as to whether there will be a special or different process when it comes to this particular piece of legislation.
Here are the steps you might want to take:
- When it comes to a subject as complicated as IR35, professional and expert opinion helps. In an ideal world you would have done this before you started a contract, but ‘better late than never.’ The professionals will look at a case completely impartially, and use their experience to make a recommendation so you know where you stand.
- Present your independent adviser’s opinion (or yours) to the public sector body, and ask them to reconsider their position. Often there might be factors the end user – or in this case – public sector employer hadn’t thought about during the online IR35 test (the Employment Status Service -- ESS).
- If the public sector body’s opinion is immoveable, you’ll need to contact HMRC, and ask them to review the decision.
- Throughout the review process, and just like a typical IR35 enquiry, HMRC will need to gather the facts and evidence about the engagement. Again, professional help is recommended from the start to make sure that the facts are presented in the best light, supported by case law. This will give you the best possible chance of overturning the original opinion. There are a growing number of status inspectors going to alarming lengths and drilling down into fine details to make sure freelancers and contractors are caught by IR35. So needless to say, taking on HMRC alone is a big burden.
- If HMRC agrees to the public sector body’s decision, then consider taking the matter to tribunal. HMRC will need to raise formal determinations, which can be appealed up to the first tier tax tribunal. As a freelance contractor, you want to be as sure as possible of your chances of success, because representation isn’t cheap.
Challenging a decision generated by the ESS (the online IR35 tool due shortly) will always be tricky, as the public sector body is likely to stand by it and -- for obvious reasons -- HMRC is unlikely to have the appetite to disagree with them. Any appeal will therefore hinge on whether or not the public sector body has correctly interpreted and entered information and facts about your working arrangements.