It’s National Payroll Week here in the UK, but in less than 6 months the private sector IR35 tax reforms are due to come into effect. When the 6th of April 2020 hits, many contractors will no longer be able to decide their own tax status, to determine whether or not they fall inside IR35.
Instead, the responsibility will be transferred to the end-client, and liability will also shift over to the ‘fee-payer’ in the supply chain. Of course this will significantly impact the income of many contractors working through Personal Service Companies (PSCs). And after the pandemonium this caused in the public sector, it’s no wonder thousands of contractors are scrambling to prepare fully for the impending reforms.
With this in mind, we’ve got some key points to keep in mind to help you prepare, and hopefully influence the outcome of a tax status decision.
Reach out first
It may be the case that the client or company you work with hasn’t contacted you about the changes coming in 2020 yet. If this is the case, don’t simply wait. Instead, reach out to them first to discuss what their plans are for the tax changes. Once you have a greater understanding of how your client intends to administer the reforms, you’ll have a clearer picture of whether you want to continue working with them past April next year.
Secure a CoA
A Confirmation of Arrangements (CoA) document is effectively a signed agreement, confirming that all parties in the supply chain are in complete agreement about your tax status. It might not be simple to obtain this due to the fact that liabilities will change as of April. However, taking the steps to secure a CoA document will make it more difficult for your client to change your status, on or after the reforms come into effect.
Take advantage of independent advice
It’s always worth seeking out the services of qualified accountants or IR35 specialists, who will be able to provide you with the best advice. Having an in-depth review from qualified professionals will strengthen your position, and allow you to better anticipate any potentially risk-averse decisions that your client might make.
Communication is key
It is also advisable to communicate with other independent contractors, preferably those working with similar clients. You could discuss the tax changes together, and find out if they have already engaged the end-client in talks regarding the reforms. Approaching your client as a collective may be more effective in getting them to prioritise well-informed status decisions.
Highlight your legitimacy
Making it abundantly clear that you run a legitimate business can really help when it comes to clients determining your tax status. Consider everything from your company’s website and address to your business insurance, in order to demonstrate that your PSC is not a way for you to try and disguise your employment.
This is by no means an exhaustive list of points to help you prepare, but it’s important to start taking the necessary steps to protect your IR35 status now. Even though in April you will no longer be responsible for determining it.
There are other options
You might choose to become a permanent employee of the end user you’re working with; retire or just not want to deal with the hassle. In which case, you’ll be looking to close down your PSC.
If this is the case and your company is solvent, a Members’ Voluntary Liquidation (MVL) is often the most tax-efficient way of closing it down – as it allows any distributed funds to be subject to Capital Gains Tax, as opposed to Income Tax.
If you qualify for Entrepreneurs’ Relief (as most of our clients do), you can also benefit from a 10% marginal rate on distributions.
At Clarke Bell, we’ve helped more than 1,750 companies to close down with an MVL, and securely distributed over £240 million of cash.
Contact Clarke Bell today for free confidential advice on 0161 907 4044.