Reply to: Risks involved in contracts running beyond April

[Anubis]

Thanks for the reply and link.
EDIT: For some context, this question comes from concerns I've seen people voice around contractors being exposed if payment is made after April (even if the contract ends in March), but I'm confused how a contractor could be exposed at all here if a contract can still stand despite the reform.

So...here's a few of the problems from a contractors perspective. We're all in the same boat:

1. Getting a contract from a client states "you have x amount of months to work on a project(s) that needs completing. Your company won the contract so crack on and deliver as agreed". So, from a contractors perspective you have only this many months worth of income from this particular client - nothing is stated about an on-going relationship with them (i.e. you are inside...aka: "off official payroll" staff or permanent staff, etc). So with all things considered you regard yourself as outside since it's only temporary and nothing is stopping your company from working with others, getting someone else to help you or substitute in for you, if the client has no work for you they are not obliged to pay you, etc. In a nutshell - "you asked for services from my company for 6 months, so I'll do my best for you for 6 months". You're outside...the end.

2. From 6th April 2020 it will be the clients who determine who inside or outside. This is because HMRC believe clients are using contractors as full time staff and they are missing a big fat wedge of tax that should be paid if this is the case. If the client pays a contractor (i.e. the contractor receives money from 6th April) the CLIENT will determine individuals that are inside or outside the tax rules. Doesn't sound too bad and it makes sense since really it's the client that knows the real intention for the future of said individual or company relationship (they pay you...so they call the shots).

3. Okay, it doesn't sound too bad (HMRC get what they want, client knows who really is a 'real' contractor or not even though your actual contract says nothing about this) until this happens....HMRC cannot garuantee...or at least there's nothing stopping them from saying to contractors post April "ahem...so, still at Mega Corp client right? oh well, you know before you, the contractor, said you're outside IR35 well...according to your client you are inside and are being treated as 'off the official' payroll with them. You now owe us back taxes running into thousands of pounds". Yet according to your paperwork signed by the client you are only there for 3 months on a day rate and if they have no work for you they won't pay you. At odds? Yep.

4. Why would clients make their contractors go inside? Your client, Mega Corp, will be liable to pay for any incorrect determinations from April. If they have lots of outside contractors then they are potentially exposed to paying huge sums of money if they are wrongly classified and are infact inside contractors - hence they are now getting rid of 'outside' contractors to be on the super safe side. To add to all this, HMRC may also ask you (who prior to April said were also outside) for back payments for missed tax the whole time you have provided services for Mega Corp prior to April.

A mess? You bet

[DevUK]

There are none - the rules were very carefully written so that contract law was avoided and the end client could declare you inside and pay you the amount less Employers NI and leave you with the mess.

Perfect, that answers my question.

Thanks a lot for the reply

[eek]

Sorry, I'm asking really specifically here about if there are implications (specific legislation) that covers contracts that span that time and I think the question's being taken as subjective.

It's hypothetical in a sense, but there's nothing wrong with a hypothetical and the decision a lot of contractors have to make as to whether to even pursue it in the first place or go perm/inside hinges on it. Invitation to interview's far too late in the day to be considering the potential impact, is it at interview stage you decide what type of contract you wish to pursue?

There are none - the rules were very carefully written so that contract law was avoided and the end client could declare you inside and pay you the amount less Employers NI and leave you with the mess.

[DevUK]

OK, so it's a hypothetical situation. We could debate for pages what might or might not happen if you choose x or y and if you get an interview and if... and if... and if...

Get a general understanding of what it means - and there's good info on here already about that.
Then IF something comes along, see how that contract or offer weighs up compared with the info that's on here.

Sorry, I'm asking really specifically here about if there are implications (specific legislation) that covers contracts that span that time and I think the question's being taken as subjective.

It's hypothetical in a sense, but there's nothing wrong with a hypothetical and the decision a lot of contractors have to make as to whether to even pursue it in the first place or go perm/inside hinges on it. Invitation to interview's far too late in the day to be considering the potential impact, is it at interview stage you decide what type of contract you wish to pursue?

[eek]

Isn't that precisely what I said?

You weren't sure and like everything else relating to IR35 nuances are very important.

[ComplianceLady]

Isn't that precisely what I said?

The reason people are spooked about payments after 6th April is that if the client determines a role inside from 6th April they / Agency can process PAYE on all payments after that date. I actually think this isn't really a risk as the fee payer can't deduct ERNIC from the contract rate so they'd have to pay this on top of the rate unless they negotiate a new rate. This means clients/agencies are wanting to be crystal clear about the status in advance.

[WTFH]

I'm not asking with regard to a specific contract, I'm currently out of a contract and I think, like many, I'm trying to decide on my next move. In case that move happens to involve a contract that went beyond the date - I'm trying to ascertain the risks involved in taking it.

OK, so it's a hypothetical situation. We could debate for pages what might or might not happen if you choose x or y and if you get an interview and if... and if... and if...

Get a general understanding of what it means - and there's good info on here already about that.
Then IF something comes along, see how that contract or offer weighs up compared with the info that's on here.

[DevUK]

If you don't know the answer to 3 you really need to do more research (hint it's you prior to April).

Isn't that precisely what I said?

[eek]

Thanks for the reply!

I'm not asking with regard to a specific contract, I'm currently out of a contract and I think, like many, I'm trying to decide on my next move. If that move happened to involve a contract that went beyond the date I'm trying to ascertain the risks involved in taking it.

1. As above, no particular client in mind
2. Definitely, I understand this to be a risk I wouldn't want to take
3. I understand there's a shift in liability to the client as of April but previous to that it would've been mine, the contractor. I may be wrong here.

If you don't know the answer to 3 you really need to do more research (hint it's you prior to April).

[DevUK]

I think you may be asking a less important question than the ones you need to ask yourself:
1. How long have you been contracted to this client?
2. If you remain at the client on another extension and it is deemed inside IR35, do you understand what that means to your previous time there?
3. Do you understand who is liable to pay the money HMRC may claim?

Thanks for the reply!

I'm not asking with regard to a specific contract, I'm currently out of a contract and I think, like many, I'm trying to decide on my next move. In case that move happens to involve a contract that went beyond the date - I'm trying to ascertain the risks involved in taking it.

1. As above, no particular client in mind
2. Definitely, I understand this to be a risk I wouldn't want to take. If I took on a contract now (outside) and the client happened to request a change to inside in April, I'd appeal it or move on.
3. I understand there's a shift in liability to the client as of April but previous to that it would've been mine, the contractor. I may be wrong here. I know I would be liable for paying money owed on any contracts investigated retrospectively if they were found to be inside.

[WTFH]

Thanks for the reply and link.

I should've been a bit clearer sorry - appreciate the client could react to the reform and insist on inside or terminate outside just to 'play it safe' but by risks I meant risks in terms of legal implications. Are contracts that run through April and beyond somehow invalidated/not compliant to the new off-payroll regs automatically because something or other needs to be done? Or could I now safely sign a 12-month contract with the only ("only") concern being that the reform could spook the client once the liability is theirs?

Thanks again.

EDIT: For some context, this question comes from concerns I've seen people voice around contractors being exposed if payment is made after April (even if the contract ends in March), but I'm confused how a contractor could be exposed at all here if a contract can still stand despite the reform.

I think you may be asking a less important question than the ones you need to ask yourself:
1. How long have you been contracted to this client?
2. If you remain at the client on another extension and it is deemed inside IR35, do you understand what that means to your previous time there?
3. Do you understand who is liable to pay the money HMRC may claim?

[DevUK]

Please read this.

Any payment made from 6th April will allow your end client to determine whether you are inside or outside IR35. Anything prior to this will be for you to determine which side of the fence you sit on.

There is nothing stopping the client from saying part way through your outside contract "hey, circumstances have changed for us so we can only continue if you agree to be inside" - they of course may not do this and you can continue working outside as you do now (nothing changes and the client is happy to accept the risks involved and can prove you are outside).

I would accept your contract for now and in the next month ask them if they are happy to continue with current agreements going forward. You don't want to suddenly be told a week before the changes that they have determined you are inside and pay you in April - because it could mean you were inside all along.

Thanks for the reply and link.

I should've been a bit clearer sorry - appreciate the client could react to the reform and insist on inside or terminate outside just to 'play it safe' but by risks I meant risks in terms of legal implications. Are contracts that run through April and beyond somehow invalidated/not compliant to the new off-payroll regs automatically because something or other needs to be done? Or could I now safely sign a 12-month contract with the only ("only") concern being that the reform could spook the client once the liability is theirs?

Thanks again.

EDIT: For some context, this question comes from concerns I've seen people voice around contractors being exposed if payment is made after April (even if the contract ends in March), but I'm confused how a contractor could be exposed at all here if a contract can still stand despite the reform.

[eek]

Hi, not Op, I read the link from the previous reply.

Would I still be exposed if I switch from PSC to Umbrella at the same client (same role) in Feb 2020?

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Yes - why wouldn't you be?

The Agency is the same - one month you are being paid via company x with little PAYE, next month being paid by company y with far higher paye and both the agency and end client are the same.

As we said when the the public sector changes were implemented the reports aren't exactly difficult and the agency reporting requirements were created for just this type of circumstance.

[Syd]

Hi, not Op, I read the link from the previous reply.

Would I still be exposed if I switch from PSC to Umbrella at the same client (same role) in Feb 2020?

Sent from my SM-G935F using Contractor UK Forum mobile app

[Anubis]

Please read this.

Any payment made from 6th April will allow your end client to determine whether you are inside or outside IR35. Anything prior to this will be for you to determine which side of the fence you sit on.

There is nothing stopping the client from saying part way through your outside contract "hey, circumstances have changed for us so we can only continue if you agree to be inside" - they of course may not do this and you can continue working outside as you do now (nothing changes and the client is happy to accept the risks involved and can prove you are outside).

I would accept your contract for now and in the next month ask them if they are happy to continue with current agreements going forward. You don't want to suddenly be told a week before the changes that they have determined you are inside and pay you in April - because it could mean you were inside all along.