By James Fernandes, March 3rd, 2020
IR35 regulations are extending to the private sector in one month, so time is running out for contractors to ensure they are compliant after April 6th 2020. If you consider yourself “outside” IR35 and wish to continue operating so, there a number of measures you can take to help you address the implications of IR35.
1. Conduct a contract review. In other words, get your house in order. Working with your current client(s) to make sure they understand that your services are employed for a specific reason and that they are not seeing you as an extension of their permanent team. This will avoid any misunderstandings and make it more likely that they will treat you accordingly. Ensure that your contracts are accurate and consistent and clearly state the service you are offering and that it is independent of the client’s control.
2. Exercise your right of substitution. HMRC consider this, and personal service, as a key factor in demonstrating IR35 status. If you are able to send a replacement even for a day, you are consolidating your position and enhancing the argument for your “outside” IR35 status determination.
3. Show how you are treated differently to an organisation’s employees. Different pay and benefits are not enough, collectively, factors such as
• flexible working hours
• unpaid holiday and sick pay
• other/multiple clients
• your own equipment
• your own training and development
• a company name that is not your own, with marketing material
• working to a fixed fee for project delivery
These are all indicative of a genuine contractor arrangement. It maybe helpful to produce and maintain a document that details the evidence that you are a genuine contractor and not a disguised employee.
4. Take out business insurance (specifically professional indemnity) if you don’t already have it. This is another factor HMRC look at when considering whether you are genuinely running your own business or not.
5. HMRC’s CEST (Check Employment Status for Tax) tool provides a useful indication of IR35 status. However, it does not guarantee an accurate determination and can give a rather unhelpful ‘undetermined’ outcome. Since its launch the tool has also been criticised for not taking into account Mutuality of Obligation (MOO). MoO refers to the obligation of an employer to provide work and pay for it, together with the obligation of the employee to personally do the work. The lack of any MoO in the relationship between the parties would be a clear indicator of a contract for services rather than a contract of employment, thus the lack of emphasis CEST puts on this when reviewing the IR35 status is problematic.
6. Get expert advice. Recruiters are among many well-versed professionals that can give you clear guidance on how best to approach IR35. At Carrington West, we guided many public sector contractors through the process when it first applied to the public sector a few years ago.