Working Inside IR35 vs Outside IR35 in the UK, what does it actually mean?

Disclaimer

Not legal, financial or verified advice. This article is intended for contractors that work outside IR35 at the moment and are confused about the real-world day-to-day impact of the law changes in April 2021. Simply sharing some of my learnings.

This is an advanced article and has a large ramp up, it assumes an understanding of IR35, it’s history and the difference between different employment types. This article does not tackle any of the contentious points about why the change is happening merely the impact.

First things first

The law changes set for April 2021 impacts the consequence of who the law impacts.

Or put simply, right now if IR35 law is broken then it is the contractor that absorbs the risk and pays the fine, from April 2021 it is the company or client that will have to pay the fine.

The spirit of the law is to prevent a contractor being used by a company like a “disguised employee” to reduce tax. A TV presenter had to pay £250K as he worked for ITV as a contractor but he was later found to be an employee of ITV, ITV wasn’t impacted. After April 2021 in this instance, ITV would have to pay the fine as they would be liable.

OK…so?

Well, the issue is a large number of companies didn’t care if they weren’t compliant with IR35 law as it didn’t impact them. If they broke the law it would be the contractor that takes on the risk and ultimate pays the fine.

In the eyes of the law, it is the contractor’s responsibility to understand and comply with the law — even if the client request they break it by working a certain way.

In an ideal world, companies would already be complying with the law and everything would continue as normal. However, what’s actually happening is that some companies find doing this either too complex, too much risk or believe it’s too much work so as a result decide, like Barclay’s Bank — let’s just get rid of contractors.

Great, what could they do instead?

Companies can comply with the law and adjust working practices accordingly, they can do a simple online assessment.

If compliant, they can continue to use outside IR35 contractors as normal.