IR35 Factors, IR35 Compliance, are you caught?

Contractors can now access a free online employment status tool which provides an IR35 status result in just ten minutes.

The employment status test, now live on the ContractorCalculator site, has been designed not only to interpret the current IR35 rules, but has also been future-proofed to deal with IR35's successor.

Complexities of creating an IR35 test

Dave Chaplin (CEO) and the team behind the new software conducted extensive research during the build process and drew on over ten years of monitoring IR35 and related legislation.

"The resulting algorithm takes into account case law and the relative importance of IR35 factors like substitution and control.

"It is made up of a few sections, each of which has its own, weighted decision algorithm. For example, some questions are either not relevant or less/more relevant, depending on whether the contractor has started their contract. The test even takes into account conflicting concerns from across the sections, to ensure an accurate result."

More than just a paper exercise

We asked Dave if that, given many people believe that having an "IR35 proof" contract is enough, one of the aims of the new tool is to show contractors that their working practices also need to mirror these written contract terms?

"Absolutely, 'passing' IR35 is not a paper-exercise. People tried that strategy in the early days, then HMRC fought back by pushing aside the paperwork and instead focusing on the 'notional contract' - i.e. the one they create themselves based on all the evidence they gather. Then the fight is all about the interpretation of the working arrangements, from which the notional contract is derived. It does also work the other way though - you could have a really poor paper contract, but great working conditions, in which case you may still pass IR35. This is why the test questions are focused on the reality."

Taking IR35 precautions

In the event of an IR35 test "fail", contractors need to address both the wording of their contracts and their working practices. We also asked Dave what other precautions contractors should take to minimise their exposure to IR35:

"Tax investigation insurance is paramount for any business. It doesn't change your tax status, but it does mean you won't have to spend a fortune defending yourself in the event of a challenge. If you really want to avoid IR35 then take professional advice upfront by having your contract reviewed, and then do things during the contract that clearly demonstrate you are outside IR35 - and file away the evidence."