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5 Tips to Improve Your IR35 Position

We know that IR35 is going to be with us for the foreseeable future. We also know that there will be a significant increase in the number of enquiries, so there is no better time than the present to ensure you are well protected.

You often can’t help the contract you are given, or the attitude of the client you are working for. But there are certain steps you can take to significantly improve your prospects of success should HMRC come knocking.

ir35 guide

  1. Compile evidence that shows why you consider yourself outside IR35. All contractors should have a contract review from a specialist, which could also include a review of your working practices. If this is positive, ensure you keep a record of it which can be produced in the event of an enquiry.

    It would also be worth creating a simple document that sets out the key reasons that point towards you being a genuine business and not a disguised employee.


  2. Exercise your right of substitution. On the face of it this may sound rather implausible, but HMRC will always consider substitution and personal service as the most important factor. If you were able to send a substitute in your place, even for one day, it would have a massive bearing on your status argument.

    In the shadow of the recently introduced Agency Worker Regulations, agencies and end users are keener than ever to ensure their contractors are seen to be genuinely independent, so suggesting to them that you send a suitable replacement for a day isn’t beyond the realms of possibility.


  3. Take out business insurance. Holding business insurances (Professional Indemnity in particular) has always been both a key and easy way of strengthening your IR35 position.

    HMRC consider having insurance as being an indicator of self employment, and included it in their much maligned Business Entity Tests. You can now buy the full range of policies (PI, EL and PL) for under £20 a month, so many contractors will consider it a no-brainer.


  4. Buy or make company stationery. It sounds insignificant, but the little factors that indicate you are a genuine business really do help. In fact, the judge in the ECR Consulting case last year stated the following:

    “ECR is in business on its own account. Elaine produced to the Tribunal copy business cards and company stationary. ECR operates from a dedicated business area at her home. It has company domain and website. ECR advertises its services and is a member of the PCG. It has retained reserves and invested in development and has over the years taken on fixed price work for a variety of clients.”

    So having things like business cards, letterheads and a company website can go a long way in an IR35 investigation. Worth it for a small outlay.


  5. Put a ‘confirmation of arrangements’ document in place. As we know, an IR35 enquiry will focus on the actual relationship with your end client. The best contract in the world will be rendered worthless if it isn’t backed up with compliant working practices.

    HMRC will seek to quiz your end client about how things work in reality and when they do you’re always on dangerous ground. Who knows what they will say when faced with countless leading questions?

    IR35 specialists have always promoted the use of the confirmation of arrangements. It is a simple document that sets out the true facts of the engagement and should negate the need for HMRC to approach the end client.

    The downside is that many clients are hesitant to sign an extra document , but you can reassure them that it isn’t a legally binding contract and simply serves to confirm your tax position. The fact is that it will benefit all parties if you are subject to an enquiry.

    You can download the confirmation of arrangements from Qdos, but always get it checked by an expert before you ask your end client to sign.

By Seb Maley

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23 thoughts on “5 Tips to Improve Your IR35 Position”

  1. stevie

    For point number 2 regarding substitution, how would you prove to HMRC that you substituted somebody for a day?

  2. Sarah

    When you hire and replace yourself with a subcontractor you should have a mixture of email records and a contract between you to show the hiring of them.

    Finally while verbal contracts are legal in England (though not advised) you still need to record in your accounts who you paid and with an indication of what they did.

  3. Seb Maley

    For proof of substitution you should also have a letter from your company to your end user informing them of your intentions.

    Bear in mind that a substitute can be an employee, or just another contractor who already has a ltd company. As long as you are responsible for paying them it doesn’t matter how they supply their services.

  4. J Shotts

    Point 4 would have more credibility of you knew how to spell stationery.
    If your company is standing still I imagine it will be immediately suspect in HMRC’s consideration. (Hard to believe the judge got it wrong – hmmm – well perhaps not!)

  5. Dave

    J shotts re-read your post with its error idiot!

  6. J Shotts

    I won’t descend to abuse – but what error are you referring to? Always willing to take instruction from my betters!

  7. Seb Maley

    Oops – a momentary lapse. I’ve changed it now, so nobody will ever know…

    I think Dave was referring to your of/if typo.

  8. J Shotts

    Thanks Seb! Careless of me. Maybe Dave thought I was being cheeky when I was trying to be humorous. No harm done.
    Actually given that ‘stationary’ and ‘confectionary’ are ubiquitously displayed on UK corner shop hoardings it’s no surprise people fall into the trap.
    It’s a good set of tips anyway! I have had my business cards and letterheads since I first went into consultancy – cost as close to zero as it gets.

  9. John McAllister

    How do you substitute yourself for one day when the company you are contracting for has a two day induction?

  10. Hughie

    Finally while verbal contracts are legal in England (though not advised) you still need to record in your accounts who you paid and with an indication of what they did.[/quote]When you mention England,is it England you mean or is it the usual mistake of thinking England is Britain?

  11. Simon

    Does a substitute actually have to turn up on site or can you just subcontract some work? I’ve wondered if for example sending a document for a review (jargon, grammer and understandabilty) to an associate who knows nothing about the company or project would count?

  12. Seb Maley

    [quote name=”Simon”]Does a substitute actually have to turn up on site or can you just subcontract some work? I’ve wondered if for example sending a document for a review (jargon, grammer and understandabilty) to an associate who knows nothing about the company or project would count?[/quote]

    If the work can only be performed at the end client site & the substitute does not visit the site then this is not substitution.

    Sub-contracting or engaging assistants is an alternative way of disproving personal service. However, this must be a viable proposition & the work carried out by a sub-contractor should be integral to the services being provided as HMRC view such claims critically.

  13. Kevin R

    [quote name=”John McAllister”]How do you substitute yourself for one day when the company you are contracting for has a two day induction?[/quote]

    Sounds to me like you fall the wrong side of IR35…

  14. COJO

    There’s an election in less than 300 days if Labour gets in IR 35 could be very very difficult. So pay yourselves and the tax on as little as possible and dump as much as you can in a SIPP. Join the Tories and get them to repeal the law as soon as they return, an income holiday with hope of a better future ?

  15. Hughie

    [quote name=”COJO”]There’s an election in less than 300 days if Labour gets in IR 35 could be very very difficult. So pay yourselves and the tax on as little as possible and dump as much as you can in a SIPP. Join the Tories and get them to repeal the law as soon as they return, an income holiday with hope of a better future ?[/quote]

    God help us !!

  16. Steve Green

    Do we think multiple clients at once is a strong defence, I have not seen any case examples that tested this?

  17. Steven Rollinson

    Hi,

    I need £1 PI insurance for a Accountants Contract. If for £20pcm you can get me (PI, EL and PL), I’ll go for that please,

    Steve

    http://contractorweekly.com/contractor-news/tax-a-ir35-news/412-5-tips-to-improve-your-ir35-position

    HMRC have historically been quite dismissive of insurance as a pointer towards self-employment, but it’s clear this is no longer the case. You can now buy the full range of policies (PI, EL and PL) for under £20 a month, so many contractors will consider it a no-brainer.

  18. bolshiebastard

    [quote name=”COJO”]There’s an election in less than 300 days if Labour gets in IR 35 could be very very difficult. So pay yourselves and the tax on as little as possible and dump as much as you can in a SIPP. Join the Tories and get them to repeal the law as soon as they return, an income holiday with hope of a better future ?[/quote]

    Hahaha! That’ll be the same tories who’ve strengthened IR35 and beefed up HMRC to do more investigations, would it?

    Dream on!

  19. John Jansen

    Follow the Qdos link in the article. It quotes £20.34/month

    I need £1 PI insurance for a Accountants Contract. If for £20pcm you can get me (PI, EL and PL), I’ll go for that please,

    Steve

    http://contractorweekly.com/contractor-news/tax-a-ir35-news/412-5-tips-to-improve-your-ir35-position

    HMRC have historically been quite dismissive of insurance as a pointer towards self-employment, but it’s clear this is no longer the case. You can now buy the full range of policies (PI, EL and PL) for under £20 a month, so many contractors will consider it a no-brainer.[/quote]

  20. Barry

    Regarding substitution.

    If the end client is a sensitive government installation with security clearances required for physical/logical access to data. Does this added element of restriction offset the fact that you cant really substitute in this case for a day or so here or there? Would that security restriction enforced by the end client be enough to negate the substitution argument given it is not possible to do that? Unless agreed when the initial contract is drawn up and additional contractors named at that stage?

  21. Alan R

    [quote name=”Kevin R”][quote name=”John McAllister”]How do you substitute yourself for one day when the company you are contracting for has a two day induction?[/quote]

    Sounds to me like you fall the wrong side of IR35…[/quote]
    A two day induction can be quite common place in a heavily Corp Governance organisation like the NHS where there are information security, physical security, and other H&S requirements that must be complied with if one is working in their buildings. There is no alternative but also highly likely a 6 month contract is being provided.How would one proof that arrangement?

  22. HS

    [quote name=”Seb Maley”]

    If the work can only be performed at the end client site & the substitute does not visit the site then this is not substitution.

    Sub-contracting or engaging assistants is an alternative way of disproving personal service. However, this must be a viable proposition & the work carried out by a sub-contractor should be integral to the services being provided as HMRC view such claims critically.[/quote]

    So… if the work can be performed remotely, a sub-contractor is as good as a substitute? Or is a critical part of substitution that the end-client is aware?

  23. ZAKOPANEPTE

    Pay your tax you damned serfs

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