Will agreeing a ‘fixed price’ and ‘outcome-based service’ decide your IR35 status?

Q. With IR35 reform approaching, like most contractors, I’m keen to continue operating outside the legislation from April 2020 onwards. I understand there are many different factors that need to be considered when determining IR35 status, but I have heard on the grapevine that a ‘fixed price’ and ‘outcome-based service’ might be enough to guarantee that my client keeps me engaged outside the rules. Is there any truth in this? 

A. There is rarely just one aspect of a contract that results in an IR35 determination. The most important thing to do when assessing IR35 status is to stand back and look at the entire picture. Neither agreeing on a ‘fixed price’ or an ‘outcome-based service’ is likely to guarantee your outside IR35 status.   

That said, what you describe are typical characteristics of a genuine business to business engagement which belongs outside the legislation. Think of it like this: would an employee work for a fixed project price? No, they wouldn’t. These two clauses will certainly help paint the picture of an outside IR35 engagement. That said, it won’t guarantee that your contract belongs there. The three key IR35 status tests such as Control, Personal Service and Mutuality of Obligation tend to each play a far more important role in deciding your IR35 status. 

Fixed project pricing, in particular, often applies to a Statement of Work. This is an agreement between a client and a supplier that outlines the details of a specific project or task that your company will complete. Unlike a contract between an independent worker and a client (where you might complete time-sheets) consultancies often agree on a Statement of Work with the business they are providing their services to, with a fee for the entire project outlined at the beginning. 

That’s not to say that by working under a Statement of Work you’re completely protected from IR35 though. And it’s unwise to draw up a Statement of Work simply as a workaround to the incoming reform. As we previously explained on Contractor Weekly, if HMRC has an inkling a Statement of Work is masking a contractor and client engagement, the tax office will have no hesitation in enforcing IR35. Given it will either be the agency or the end-client that carries the IR35 liability from 6th April 2020, private sector firms understandably want to be sure that a Statement of Work hasn’t simply been put in place to avoid the changes.

This answer was provided by IR35 specialist, Qdos Contractor.