On April 6th, 2021 – the off-payroll working rules known as IR35, will be extended to the UK's private sector - affecting contractors, freelancers, and all but the smallest UK businesses.

From this date, employers will take on the responsibility of determining an individual's 'Inside' or 'Outside' IR35 tax status, becoming liable for the contractors they engage. This includes taking-on responsibilities for all financial risks associated with incorrect decisions and underpayments.

The intention behind IR35 is commendable; combat people working (and paying tax) like permanent employees while contracted through a personal services company (PSC) - by focusing on the contractor/employer relationship and giving end clients the power of tax status determination. However, this new off-payroll framework's reality has the potential to impact the UK economy in the years to come severely.

According to the Office for National Statistics (ONS), December 2020 saw close to half a million fewer self-employed people working in Britain than just three months previous. Of course, some of this is related directly to the global pandemic we're all currently experiencing – but that isn't the sole factor.

On January 20th 2021, Bank of France CEO Francois Villeroy de Galhau stated that while London still remains Europe's financial hub, other major European cities such as Paris, Dublin and Frankfurt are all scrambling to remain active and healthy in the 19-nation eurozone after Brexit. He also added that "In spite of the pandemic, almost 2,500 jobs have already been transferred and around 50 British entities have authorised the relocation of at least €170bn (£151bn) in assets to France at the end of 2020."

UK Chancellor Rishi Sunak has told MPs in the House of Commons that Brexit process's conclusion will allow Britain to "start doing things differently and better" - referring to financial regulations. He also stated that Brexit will help "reinforce the UK's position as a globally pre-eminent financial centre".

Most firms appear to be awaiting the final outcome of EU-UK negotiations before determining their response. Many positive developments are happening in the UK (such as our globally recognised, leading approach to Open APIs), but issues surrounding Brexit will impact UK investment and access to talent; both here at home and across Europe.

According to data collected by IR35 Shield - 52% of in-work contractors are yet to be assessed for IR35; even with the April deadline fast approaching. Of 3000 contractors who responded to the survey, 65% stated they would be avoiding Inside IR35 contracts, with close to 23% of firms reportedly bypassing checks by imposing blanket bans on limited company contractors.

In our experience, most of our clients have made the necessary changes required to take on the responsibilities of off-payroll determination. Since the original private sector extension announcement in October 2018's Budget, we've also worked closely with our contractor network – ensuring they are knowledgeable and prepared for the upcoming changes.

In August 2020, we wrote an article describing how companies and freelancers should be preparing for April 6th 2021. We highlighted vital considerations for end clients, including;

• How many contingent workers you have engaged - who are they - what are their roles?

• How will you establish the facts of each engagement on a case-by-case basis and the processes you are going to follow, as-to comply with new rules?

• What advice, resources and tools can you use to make informed decisions and status determinations?

We also stated that hiring firms are obliged to provide contractors with 'Status Determination Statements', outlining the reasoning behind an Inside or Outside IR35 outcome that clearly demonstrates the use of 'reasonable care'.

Until this statement is provided, companies are classed as the fee-payer. They are liable for all responsibilities and the deduction of appropriate tax/NICs from the contractor (before paying the HMRC).

Your business needs to be able to identify PSCs in the supply chain, have transparent processes in place for status determination, have contractual provisions ready with agencies – and procedures prepared for payroll deductions as applicable.

In the case of contractors, if you've yet to receive an IR35 status determination from your employer, we highly recommend pursuing this confirmation – with urgency. Start the conversation, prioritise the capacity to provide a substitute, ensure you can demonstrate you're not under their direct control and ensure there's no mutual obligation for future paid work.

Caspian One has responded to IR35 by supporting our communities, sharing resources and building Outside IR35 best practices into our 'Partnered Capabilities' business model; designed to facilitate outcome-based project work.

To learn more about this consultative service contact us via projects@caspianone.com or speak with a Caspian One team member directly.