As we all know, IR35 can be hideously vague and bewildering at the best of times. The internet provides a wealth of scaremongering and sometimes inaccurate information on the subject, so it’s no wonder many contractors end up being confused.
In this article we seek to debunk the most common IR35-related misconceptions that crop up in the contractor community.
I have worked at the same client for over two years, so I must be caught by IR35.
This one pops up surprisingly frequently, probably because it is confused with the 24 month rule which relates to claiming travelling expenses to and from a workplace (but has nothing to do with IR35).
In the Revenue’s eyes, the longer you have been at one place, the more likely you are to be part and parcel of the client’s organisation, but there are no set time limits. If you continue to work in a compliant manner with good working practices, you can effectively work for the same client indefinitely without your status being affected.
The one other thing to bear in mind is that HMRC may well focus on the contract that will provide the highest yield to them and a very long engagement is likely to fit this bill. Therefore the potential liability if you were caught could end up being quite high.
So it’s probably preferable to have shorter contracts at different places, but it certainly shouldn’t stop you from staying put if the contract works for both parties. It simply shows good business acumen!
I had my contract reviewed and it failed, so I’m definitely inside IR35.
This is a bit of a tricky one. Having a good contract is obviously important. In the event of an IR35 enquiry it is HMRC’s first port of call, and they are likely to focus on any negative wording.
Having said that, if (and only if) your working practices are compliant and your end client confirms this, it could override any written agreement. The sad fact is that many agencies peddle out the same rubbish contracts, regardless of how the individual contractor actually works.
If you do have a poor contract that can’t be changed, it is highly advisable that you look to put a confirmation of working arrangements in place directly with your end client. This is a short document that sets out what the true working arrangements are and will trump your dodgy contract.
I don’t know of any potential replacements for me, so my right of substitution is not genuine.
This is actually one that the Revenue themselves bring up in enquiries. However, the issue of substitution is all hypothetical. If you were not able to provide the services yourself and, hypothetically, you had a like-for-like replacement lined up, would you be able to send them in your place?
Many contractors (and end clients) initially baulk at the thought of any Tom, Dick or Harry doing the work in their place, but it really isn’t that extreme. The replacement wouldn’t need to be an employee either; providing you were responsible for paying them they could be another limited company contractor. You could theoretically source them through an agency or other network of similar contractors.
My contract states the hours that I have to work – this means I’m controlled by the client.
You have to be a little careful here. Clearly it’s not going to be good if your contract states you must work ‘8.30am to 5.00pm with 1 hour lunch break’, which is something you’d see in an employment agreement. However, the rate of payment for many contracts is based on a professional working day. So, if your contract sets out what that is, it isn’t necessarily a problem.
If you do conform to your client’s working hours and HMRC query this, a good counter argument is that you need access to their systems so it makes business sense to work on the same basis as they do.
I’m defined as a manager on my project, so this means I’m integrated into the client’s staff
There’s a big difference between a project manager and a line manager. If you are simply leading a project and ‘project managing’ internal and external resources, that should be fine from an IR35 perspective. Plenty of contractors are project managers.
However, you need to avoid having any kind of internal management responsibility. If you start getting involved in appraisals, disciplinary etc., this will become a problem from an IR35 perspective.
Please add your comments below if you have any other possible misconceptions or myths you’d like us to address.