IR35 compliance – are you inside or outside IR35?

If HMRC decide to conduct an IR35 status enquiry, there are a number of factors which will be taken into account when determining whether or not your contract will fall within the scope of IR35 or not.

IR35 – the big picture

When working out the employment status of a contractor, there are a number of important points to bear in mind before we look at the individual IR35 factors themselves:

1. The contract between contractor and agent (know as the lower tier contract) must demonstrate that the contractor is working in the manner of a ‘self-employed’ person.
2. The contract terms of the upper tier contract (between agent and client) should mirror those of the lower tier contract.
3. The working practices of the contractor must also show that he/she is not merely a disguised employee.
4. A confirmation of arrangements document provided by the client will go a long way to backing up any working practices claims.
5. HMRC will look at the big picture of a contractor’s contract when determining IR35 status.

When working out whether or not a contract for services is one of ‘self-employment’ or not, the following factors will be taken into account:

IR35 compliance – key factors

1. Substitution – does the contractor have a right to provide a substitute worker if they are unable to provide services for a period of time?

2. Mutuality of Obligation – is the contract open-ended, and is there the expectation of ongoing work by the contractor once the contract expires?

3. Control – to what extent is the contractor under the direction and control of the end client?

4. Provision of Equipment – does the contractor provide any equipment, or is this all provided by the client?

5. Financial Risk – does all the risk lie with the client, or could the contractor suffer penalties due to non-delivery, or other problems which may result from the contract?

6. Basis of Payment – is the contractor paid by the job, or on a fixed hourly/daily rate?

7. Part and Parcel – to what extent is the contractor tied to the organisation? Do they behave more as a permanent employee than a self-employed contractor?

8. Exclusive Service – does the contractor have more than one client, or must he/she work exclusively for the single client in question?

9. Intention – what is the genuine working relationship between the parties? Is it really one of ‘self-employment’?

10. In Business on Your Own Account – how do various aspects of the contractor’s workings demonstrate that they are a business – do they have company stationery, a website/email, do they advertise? Are they VAT registered, do they have business insurance?

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Last updated: 6th September 2019