When it comes to ensuring that your contracts sit outside of IR35 you need to make sure that your working practices align with your clients. Contracts will need to be checked for each assignment, and they must contain the right information to ensure that they back your status as someone self-employed because this is the difference between being outside or inside IR35.
Deciding IR35 Status – Three Principles to Consider
It’s a complex situation when deciding whether IR35 applies to your assignment, but there are three principles to consider.
- The first relates to supervision, direction, and control and how your end client controls how, when, and where you carry out your contract.
- Secondly, substitution is another consideration, and you will need to think about whether you are expected to carry out the work yourself or send a substitute in your place?
- Finally, mutual obligation relates to whether the client is obliged to provide work and whether you are obliged to take it.
So, regardless of whether you work in the public or private sectors, these principles will stay the same. The onus will be placed on you to show that they do not apply to your working practices or your contract to be outside.
The Principles in Depth
Supervision relates to how your clients supervise your work, while direction will relate to how your client dictates how you complete the assignment. The control element is associated with how a client might dictate the work you do and how you do it.
If you want to be considered a self-employed contractor, then these clauses should not be included in a contract.
Substitution and whether you can provide a substitute is another test of employment. If you can send a substitute to complete the work and carry it out without your input, then it is likely that the contract will be outside IR35. In contrast to this, if the client only wants you and your skills and is not interested in a substitute, this could signify that you are not self-employed but an employee.
As far as mutuality of obligation goes, there are two main obligations to consider, and these are:
- One party is obliged to offer work.
- The other party is obliged to accept work if it is offered.
Essentially, a contractor has to move from project to project, with no obligation to continue working for a client once the work has been completed. What this means is that a contractor can also end a contract even if it is partially complete. In contrast, an employee can only work for one company with the obligation to continue working beyond the completion of tasks.
It’s also crucial to look at your contract and determine whether it permits you to take on additional projects. If the client is seeking exclusivity and stipulates that you must work a certain number of hours each week and take on work that they offer, you would be considered inside IR35.
Additional Factors That Influence IR35 Status
While the areas mentioned above are the main areas, other elements can impact whether you are outside or inside IR35.
How you are paid will impact your status. Commonly, a contractor is paid upon completion of the work, which is unlikely that of an employee whereby regular payments are received. If your contract indicates that you can only have a single client, you are likely an employee, while you should also use your own equipment and not that provided by the client.
The premises will also have an impact as that should identify where you carry out the work. At the same time, IR35 could affect you if you have any involvement in the corporate structure, and this can relate to being given access to their building whereby the pass does not label you as a contractor.
If your contract contains regular and guarantees work on a weekly or monthly basis, it’s going to look as though you are an employee instead of someone self-employed. Along with this, contractors are also required to rectify work in their own time, while professional indemnity insurance is another sign that you are self-employed.
If employee-like benefits are included within your contract, then you are going to be inside IR35, but Agency Workers Regulations will have an impact on those contractors who are using an Umbrella Company. As a result, Agency workers are provided the same benefits as those employees who are permanent.
Those contractors that become a part of the organisation in ways such as having staff report to them or being included in the organisation charts could fail IR35. Therefore, it’s important to make sure that they remove themselves from the inner workings of the organisation. It’s vital that the contract clearly indicates the intentions of both the client and the contractor. The work should be identified, but should the parties’ intentions not reflect those in the contract, HMRC will look beyond this.
There are a few other things to consider: having the ability to demonstrate that you are actively in business on your own. While you might not have staff or stock, you are likely to have an office or a website, and you might even be VAT registered, all of which will indicate that you are self-employed.
Your IR35 status is vital, and that can mean that it’s essential to obtain advice where necessary as this will provide peace of mind. Overlooking even the smallest of details could result in an inspection, and that could lead to you facing significant fines.