Following the implementation of IR35 reform, HMRC has the remit to investigate compliance among businesses and contractors.
When doing so, HMRC typically uses three so-called key tests to establish whether a contract is inside or outside the scope of the rules.
Control is one of the strongest indicators of employment status under IR35. If a client dictates how, when and where the work is done, the contract is more likely to fall inside IR35. Where a contractor retains autonomy over delivery, it supports an outside IR35 position.
These tests – Personal Service, Mutuality of Obligation (MoO) and Control – are considered the most significant factors in determining whether or not a contract is caught by the IR35 rules.
While all three matter, Control often carries particular weight. It looks at who decides how the work is done, rather than simply what needs to be delivered.
In the event of an enquiry, HMRC will examine:
- Who decides how the work is carried out
- Who sets working hours and location
- Whether the contractor is subject to supervision or direction
There are also other factors that, when considered alongside the contractor’s working practices, provide an overall picture of whether a contract is inside or outside IR35.
For example, a contractor with genuine autonomy is also more likely to demonstrate a clear business-on-own-account position, and avoid being treated as ‘part and parcel’ of the client’s workforce.
In this article, Seb Maley, from award-winning IR35 specialist, Qdos, explains why HMRC places such importance on ‘Control’.
‘Control’ is arguably more important than ever
Contractors compliantly operating outside IR35 aren’t usually controlled by their clients. As genuinely self-employed workers, they should have autonomy over how they provide their services – whether that’s the approach taken, or where, when and how these services are delivered.
Granted, it’s not always black and white. For instance, some contractors – often those working in financial services – may be constrained to working certain hours or from certain locations as a security measure.
Control over ‘what’ a contractor is doing
Outside of the specific circumstances detailed above, control is a spectrum. At the extreme end, contractors may be subject to constant supervision, monitoring, checking, and appraisal; treated, in short, as employees.
At the other end, a contractor has complete freedom – subject only to the final delivery and acceptance of the services.
In the real world, this means flexibility over times and days of attendance when not working from a place of your choice, and providing specialist skills that the client’s staff do not have. Scoping a project and setting deliverables and milestones yourself is another hallmark of contractors holding control.
Essentially, the more control an end-client holds, the stronger the case for a contract belonging inside IR35. The reverse is also true; the more control a contractor has, the more likely it is to fall outside the clutches of the legislation.
As such, contractors should remain in control of the ‘what’, as well as in charge of determining how, where and when they work, to avoid being caught by IR35. This should be reflected not just in the written contract, but in the actual working practices.
Further information
- IR35 and the Right of Substitution (RoS)
- What is the Mutuality of Obligation (MOO)?
- Key factors in IR35 compliance
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