The real victims of IR35 (and 6 ways to protect ourselves)
Recently a fellow sparky said he had no idea what IR35 actually means for workers. He’s not alone. Google searches just make it more confusing, social media is full of conflicting advice and the details on the government’s website - despite being written in plain language - still don’t tell us what IR35 means in real-world terms.
Time for the workers’ point of view.
First things first, we need to know if IR35 applies to us. IR35 applies to us if (1) we work through our own Ltd company and (2) we’re doing work created by someone else.
Sounds simple. But what exactly do we mean by work ‘created by someone else’?
Employment vs. self-employment
If we go back to basics, there are really only two options open to construction workers when it comes to doing work:
We can do work created by someone else (ie employment); or
We can create new work ourselves (ie self-employment).
For example, employment means applying to that company down the road or that agency on the phone. It’s being paid their rate, being told when to arrive, what work to do, when to leave. It’s work that we do on their terms.
On the other hand, self-employment means advertising, winning customers and setting our own rate. It’s arriving when we want, doing what we want, leaving when we want. It’s work that we do on our terms.
IR35 doesn’t apply to us if we’re employed. Nor does it apply if we’re self-employed.
Trouble is, many of us are telling HMRC we’re self-employed in spite of the fact that we’re on-site doing work created by others, where we don’t have control over the rate, when to arrive, what to do nor when to leave. This is not genuine self-employment.
Nevertheless, we’ve been setting up Ltd companies to try and give legitimacy to our so-called self-employment. And we’ve actually been getting away with it for ages now, avoiding the full toll of the taxman.
But the party’s over. HMRC says we’re ‘bogusly’ self-employed and IR35 is here to catch us. The question is, will we get caught?
There’s an online test we can take ourselves that indicates if we’re bogusly self-employed on our current job. Take the test then come back here. Be sure to answer the questions honestly. Nobody’s watching…
Welcome back. If our results said that IR35 rules apply, it probably means we are bogusly self-employed on your current job. This is probably how our employer or agency will see it, too.
So, what will happen next?
We won’t be able to 'go Ltd' any more
From 1 April 2020, medium to large employers (and agencies) will have to show HMRC whether IR35 rules apply to each worker, with heavy fines for employers that get it wrong.
Employers will most likely want to avoid this risk so they’ll most likely refuse to employ us through our Ltd companies any longer (smaller employers might let us carry on… for now).
Instead of Ltd, then, we’ll be offered different contracts. We might be offered genuine employment, as in PAYE, but since the construction industry lives and breathes temporary contracts, that’s unlikely.
Much more likely will be offers of umbrella-style contracts or new mutations of them. It’s scary to think what Frankenstein contracts accountants are now busy creating!
Our choices after 1 April
There are probably going to be three choices open to us:
We could choose employment, dust off our CV and apply to that company. We’ll have to stop pretending we’re in business but at least we’ll enjoy the traditional ‘bundle’ of employment benefits and financial security.
Or we could choose genuine self-employment, dust off our entrepreneurial hats and go get our own gigs. We can keep our Ltd companies, do work on our terms and bear the financial risks and rewards of being in business.
You never know, those of us who can leverage our skills, networks, resources and confidence may even live to thank IR35 for giving us the nudge we needed to join a company or to start one.
But those of us less skilled, less connected, less equipped or less lucky will be at the mercy of umbrella contracts or their new mutant offspring that crafty accountants create to help employers cut costs.
This isn’t a post about umbrellas. Most of us know enough about them already and I’ve written before about why they exist but it’s worth reminding ourselves that they often don’t have our best interests at heart and this has been widely publicised.
What does IR35 actually mean for workers? It means disguised employment is out and with it, the loophole that left us in charge of our own tax.
But while this is certainly annoying for those of us avoiding the taxman and enjoying a more laidback Ltd company lifestyle, the real victims of IR35 are going to be the most vulnerable, those of us who can’t as easily leverage the resources needed to choose employment or genuine self-employment.
6 ways we can protect ourselves
To soften the blow, here's a list of resources we can leverage if we find umbrella is our only option. It won’t stop the taxman but it might stop us being ripped off:
1. Shop around. Skills shortages mean workers have more power to choose. If we don’t like the sound of one agency, we can try others. earwig has a growing directory of agencies and companies complete with their contact details.
2. Ask agencies to send us contracts by post or email (don’t rely on online portals). Many agencies use online portals to store contracts. This might save paper but it makes it hard for us to find old contracts if we have a question or dispute. Having a paper or digital copy means it’s always on hand when we need it, now and in the future.
3. Ask agencies for a Key Information Document before every job. From 6 April 2020, Government legislation will force agencies to send us a Key Information Document before each job. This document must show us important details like the rate of pay and any deductions, fees and benefits.
4. Ask agencies or umbrellas for itemised payslips. Government legislation now forces agencies and umbrellas to show a more detailed breakdown of wages, taxes and fees on our payslips. We can use this to stay on top of how we’re being paid.
5. Campaign for better. Apps like Organise let us start our own campaigns for better working conditions.
6. Tell our story. Giving feedback about our experiences is vital if we want the best conditions. earwig lets us tell our stories (anonymously) and then publishes them for the world to see.