Starting April 2017, public sector contractors no longer had the capacity to declare their own IR35 status. This resulted in thousands of PSC contractors have their net take home pay decreased.
There was a growing amount of fear by legitimate contractors to be caught out by the reforms. They unfairly ended up inside IR35 and had to pay a heavy price.
There are various strategies on how contractors can avoid IR35.
Communicate with client
Various analysis has been done regarding this issue. Most of these had been from the point of view of a contractor. Many have missed checking the standpoint of employers.
A majority of clients in the public sector disliked the onset of this new legislation. In addition to additional administrative responsibilities to these clients, clients found the rise of contractor costs as well as it made it difficult to hire talent.
A contractor can communicate with these public sector clients on how the latter plan to apply the rules.
It is considered to be a legal thing to have the IR35 question. Evidence needs to be gathered in order for a contractor to prove he is outside IR35.
The Employment Status Service (ESS) tool will be the data-gathering tool of HMRC in determining the IR35 status of a public sector contractor. However, many experts declare that this tool will not be sufficient in determining the real IR35 status.
Other sources of evidence are a copy of the original contract, emails from the engager, invoices, timesheets, photographs from job sites, and conversations with the engager.
This evidence will be the basis of an IR35 compliance file that can be utilized to argue a contractor’s case with the public sector body.
Ask help from an expert
IR35 legislation is complex. Thus, a contractor needs qualified help from a company whenever there are IR35 cases.
Transfer to private companies
It is virtually impossible to avoid the IR35 tax trap. One possible way is to transfer to private sector clients instead of servicing public sector customers.
It is significant to note that many experts believe that the rules designated to public sectors will be applied to the private sector Thus, there would only a temporal convenience when switching to the private sector.
Switch to an umbrella scheme
The changes in IR35 legislation made working through a personal service company, not the most tax-efficient option.
If a contractor transfers to an umbrella scheme, then contractors would pay the same National Insurance contributions as well as tax payments but would obtain employment benefits such as pension contributions and holiday pay.
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