Just when we all thought things couldn’t get any more complicated with regards British politics, a 12th December General Election has been thrown into the mix. As the news is filled with stories of campaigns, Brexit, and whether or not nativity plays will need to be cancelled, most contractors are wondering what this (and the delayed Budget earlier this month) will mean for April 2020’s IR35 reforms.
If you’re in the process of setting up your own business as a contractor or freelancer then one of the biggest things on your mind is probably how best to market yourself.
There are lots of things you can do and some you’ll have already implemented: designing business cards, polishing your LinkedIn profile, signing up with recruiters, and speculatively calling and emailing companies or brands you would like to work with are just a few. However, building a website could well be something you’re undecided over whether or not to do.
It’s an unpleasant fact about contracting and freelancing: occasionally you may come across clients who either pay late or don’t pay at all. Sometimes this can be an innocent mistake, sometimes it can be a deliberate tactic on the part of the client to manage their business’s cash flow. Either way, it’s annoying for the self-employed who then have to dedicate time and energy to chasing up late or missing payments, which takes away from time spent on actual work projects.
Back in September, Kingsbridge Contractor Insurance’s Legal Manager, Nicola Hayman, teamed up with Andy Chamberlain, Deputy Director of Policy at ISPE, to deliver a special webinar for contractors who may find themselves caught up in next year’s private sector IR35 reforms. The webinar attracted a huge 970 contractors, all keen to find out more about whether IR35 will affect them and how it will be different to the already-rolled-out public sector reforms.
If you have an hour and a cuppa, you can sit down and watch the webinar on YouTube. But if you’d prefer to read about it, then don’t worry. We’ve summarised the important points of the webinar into this article so you can get through it a bit more quickly.
You can still grab that cuppa first though….
IR35 and its public sector roll-out
According to Chamberlain, IR35 is a “deadly cocktail of complexity, tedium and importance.” Complicated because, as has been aptly demonstrated, it’s hard to know when it applies, boring because it relates to tax (not many people find tax very interesting), and important because the government are prioritising IR35 tax compliance. Which, ultimately, means contractors need to get around the complexity and overcome any sense of boredom because, well, it’s happening.
So how is your IR35 status determined? In the first instance, there are three key factors to consider to determine status:
- Personal service – Can you send a substitute to do the work in your place without requiring permission from your client? If you have an unfettered right to do this then you can argue that IR35 doesn’t apply to you.
- Mutuality of Obligation (MOO) – This is a highly contested feature as people define it differently and, Chamberlain says, the government have applied an extreme definition to their reforms. Ultimately, there must be obligations on both parties (contractor and client) to do something for one another for IR35 to apply.
- Control – Who controls the work that’s being done? Contractors shouldn’t be controlled by their client in the way an employee is controlled by their employer.
In order to make a case that IR35 does not apply to you, you’ll need to be able to demonstrate that at least one of these factors does not apply to your contract and working practices However, other factors can be taken into account as well. This is known as the business-on-own-account test which was brought to the fore earlier this year when HMRC lost its IR35 case against presenter an journalist Kaye Adams. This test looks at whether you are in business on your own account or whether you are “part and parcel” of the organisation by examining things such as:
- Do you take on financial risk?
- Do you need your own business insurance?
- Do you need to provide your own equipment?
- Do you attend training, team meetings, or team building sessions?
- Do you have access to the staff car park?
- Do you have access to the staff canteen?
- Do you attend office Christmas parties?
The argument from HMRC is that if your answers to these questions suggest you are actually “part and parcel” of the organisation, then you are a disguised employee and, therefore, IR35 applies. HMRC claim that there is widespread non-compliance on this, but Chamberlain points out they have lost six out of seven of their last IR35 cases since the roll-out in the public sector, so perhaps non-compliance isn’t quite as widespread as they believe.
So, what changes do the IR35 reforms mean? Put very simply the changes mean that a contractor’s IR35 status will now be determined by the end engager, not the contractor as it currently is. If a contractor is found to be within IR35, they will be taxed at source in the same way as a permanent employee. However, unlike a permanent employee, they will not have any employment rights and will still need to charge and pay VAT.
Predictably, this has created issues in the public sector:
- Public sector bodies are notoriously risk averse and so blanket decisions were made, bringing contractors inside IR35 when there was no reason for them to be. TfL and the NHS both did this initially, revising their approach later after the damage had been done.
- As a result, many contractors left or are preparing to leave the public sector (31% according to an IPSE and CIPD joint survey in January 2018).
- Because of this, rates are rising meaning the public sector now has to pay more to get work done.
- Many people are paying employment taxes while being denied employment rights.
Now, we’re sure you can see where the “complex and boring” bit comes from. But forewarned is forearmed and, at Kingsbridge, we think it’s important to understand the detail of what’s happened already in order to understand what will be happening in the private sector next year.
IR35’s private sector roll-out
As most of you will know, IR35 will be rolling out in April 2020, as announced by then-Chancellor Philip Hammond in the 2018 Budget (and as predicted by IPSE and most other industry bodies when the public sector reforms were announced).
The first thing to note is it will only affect contractors working for medium and large private sector end clients (note – this is not the size of the recruiters). HMRC categorises these, at present, as any company with an annual turnover of more than £10.2 million, or a balance sheet of more than £5.1 million, or more than 50 employees. So, anything above any one of these criteria means a business falls into the medium or large category and so is liable for IR35.
If this applies to you, the major change is that your PSC no longer determines your IR35 status and is no longer liable for ensuring the correct tax is paid.
- Your end client now determines your IR35 status
- Your fee-payer is liable for ensuring correct tax is paid
- Tax will be paid at source (PAYE), usually at the basic rate dependent on earnings
- The end client and fee-payer may be one and the same if your client pays you directly, or they may be two different entities if you are paid via an agency
Your end client will provide a Status Determination Statement (SDS) outlining your IR35 status and their reasoning. This will be passed down the chain (where necessary) from the end client to the fee-payer. Liability transfers with the SDS, so if a party in the chain fails to pass the SDS on, then they become liable for non-compliance. The SDS is based on the engagement, not on you as an individual. So, you could be caught inside IR35 on one contract but not on another. In fact, you could be working on two contracts at the same time, one within IR35 and one outside of it.
A big difference to the public sector reforms is that there will be a client-led status disagreement process so there is an agreed process for you to challenge the SDS if you don’t believe it’s correct. Your end client has 45 days to respond from when you push back, although they are not under any obligation to change their decision. It at least means that there is some way to formally disagree with decisions though – something that was missing from the public sector reforms.
What can contractors do to prepare for IR35 reforms?
Hayman is very clear that if your assignment is legitimately outside IR35 then you should be able to continue working in this way. Equally, you should ensure you review your working arrangements prior to next April to avoid being caught by IR35 unnecessarily.
She suggests you can prepare for this by:
- Discussing your role with clients and recruiters
- Ensuring you understand the new process
- Understanding what defines your status (look back at the points made earlier or take a look at the Government’s CEST tool)
- Checking your business insurances – you will still need this as long as you are contracting through a limited company
- Checking your working practices against your contract (You can get a review from our specialist IR35 review partner Larsen Howie)
- Renegotiating your contract in time for the reforms – especially if you have been working outside IR35 on 5 April, but will find yourself within it on 6 April on the same engagement
- Considering other models of working (where necessary)
- Being aware of unscrupulous umbrella companies (for instance those who claim to offer big take-home numbers)
- Doing your research -In August this year, the Government published guidance for clients and agencies which can be found on the UK website. Draft legislation has also been published
- Speaking to experts
At Kingsbridge, we’ve already been writing lots to help contractors understand the IR35 reforms and aim to have more expert guidance available over the next few months so keep up to date with our blog for all the latest.
No, we’re not talking about some crazy exercise fad or bizarre pastime. Instead, we’re talking about ways you can disguise your perceived “weaknesses” as a freelancer or contractor and turn them into strengths that will make you uniquely hireable.
But what does this look like in real terms?
What got us thinking about this was reading about Hannah Martin, co-founder of The Talented Ladies Club and successful freelance copywriter, who was also a parent. In the early days, she found being a mum meant she could rarely be available to work onsite with a client. However, she performed a rather genius sleight of hand by identifying her USP.
This was built around being the go-to copywriter if you had an urgent brief, or if you needed work doing overnight or over the weekend. Clients suddenly weren’t bothered by having to brief her over the phone and have her work remotely if it meant they were delivering work to their boss on time. This is a great example of putting a spin on a supposed shortcoming and making it a strength that sells.
If you’re a younger contractor and freelancer, your comparative lack of experience can be a bit daunting. The same goes for older contractors who have perhaps only held one or two long-term roles prior to becoming self-employed – you may feel inexperienced compared to people who have a more varied CV.
Remember though, a more focused career doesn’t necessarily make you inexperienced, it makes you a specialist. While others may be able to do lots of things, you can do one or two things exceptionally well. It’s just a case of turning how you think about yourself on its head.
Fees may not seem like something you can put a spin on. They are what they are, after all. But that doesn’t stop prospective clients (for freelancers more than contractors) attempting to haggle when you give them your estimate for an assignment.
Putting a spin on your fees helps prospective clients see the full value of your service and what is included in that estimate. So, instead of simply telling a client your day rate and what deliverable they’ll get at the end – whether it’s a new company-wide email system, a civil engineering project, or simply some marketing copy – make sure they know that they’re also getting your years of experience, your various skills, your problem-solving abilities, your contractor insurance and anything else you consider relevant. This can be the difference between winning a contract and losing out to someone who’s cheaper but not necessarily as talented.
Spinning yourself as a contractor or freelancer isn’t about being dishonest – you’re not saying anything about yourself that’s not true. It’s simply about knowing how to market yourself and make sure that your USPs shine through. People can be quick to dismiss things that don’t fit into their way of thinking, so putting a spin on things that could be seen as problematic instead shows that they are, in fact, benefits of hiring you. And that can be no bad thing.
While it’s popular to say “you do you”, this may not be the case if you’re in an interview situation.
In fact, a recent report from CV-Library and TopCV (based on a survey of 200 employers) found that a huge 75% believe that personality is the most important factor when considering someone for a job, whether that be as a contractor or as a permanent employee. Just to put it in perspective, that’s compared to those who believed it was education (13%) or appearance (12%).
So, you could have all the skills and education, but if there’s a clash of personalities, you could well lose out on the contract.
According to the report there is a top ten of personality turn-offs that are almost guaranteed to get you taken off the recruitment shortlist. These are:
- Being unreliable
- Being immoral
- A sense of entitlement
- A short temper
The list of the most favoured personality traits is somewhat self-explanatory. It includes being reliable, having confidence, honesty, being honourable, loyalty, friendliness, and being self-disciplined.
Careers Expert at TopCV, Amanda Augustine, had this to say on the results of the survey: “Historically, assessing job seekers was contingent on two factors – experience and skills – but our new survey reveals that more intangible qualities, such as personality, are determining which candidates rise to the top.”
Of course, the fact that personality traits are intangible can mean it comes down to personal preference, but there are things you can to do make sure you’re at an advantage.
How to make sure you come across at your best
When bidding for a contract, you have a relatively small space of time to convince the hiring manager that you’re the right person for this project. As well demonstrating your experience and skills, you also need to use the time to show off your sparkling personality. So, what do you need to do?
- Tread the fine line between selling yourself and coming across as arrogant and entitled
- Be open, transparent and honest
- Arrive in plenty of time and prepare anything you said you would
- Show yourself to be open-minded and well-informed
- Be kind, polite and pleasant – it costs nothing
While this might seem obvious to most people, it’s easy to get carried away in an interview environment, especially with the race-to-the-bottom business culture so often demonstrated on the likes of LinkedIn and in popular culture. It’s not necessary to be an awful person in order to get ahead and, as this report shows, it can actually damage your chances in very real terms.
Of course, there are other things that can also damage your chances at securing a contract and not having the correct contractor insurance is one of them. If you’re ready for renewal or need to buy for the first time, our expert team can help. Simply call 01242 808740.
Here at Kingsbridge Contractor Insurance, we recently had a conversation with an IT contractor that gave us insight into a scenario that we think may be fairly commonplace. How to be assertive when contracting.
The contractor told us that a couple of projects she had recently worked on had overrun past their deadline due to her clients holding things up internally. This was due to things like long turnaround times on sign-offs, delays in providing information and other hold-ups. She said she felt as if she should have pushed back to her clients, reminding them of the deadlines and asking them to speed things up. However, she didn’t feel confident to do this as she is a contractor and didn’t feel she had the same influence as a permanent employee.
So, we’re here to tell you what we told her: never be afraid to be assertive.
Not that long back, not working from the office meant, instead, working from home or, maybe, a library. Then came the coffee shops with their free WiFi and the idea of more flexible workspaces began to gather pace, cumulating in the more formal co-working spaces now available in most cities across the UK. These offer WiFi, food services, printing facilities, meeting rooms, virtual office services and the company of other freelancers, and latest research has shown that these workspaces are growing in popularity with no sign of tailing off.
Contractor Umbrella reports that forecasts suggest there will soon be more than 20,000 co-working spaces globally and this number will reach 25,968 by 2022. That’s 56% growth in 2018 alone and an average of 2,500 new spaces popping up per year since 2015. Last year, a new flexible workspace opened in London every five days.
But what are the pros and cons of using these spaces?
It’s official. The UK’s creative sector is thriving after £1.1 billion in support from the Government in the form of tax reliefs.
Award-winning, water-cooler-moment TV series Killing Eve is just one such to benefit from them, and since they were introduced 2,955 films, 485 TV productions and 1,075 videogames have also benefitted. Meanwhile museums and galleries have benefitted from an exhibitions tax relief that has allowed them to host 300 exhibitions across the country.