Q. My friend is a self employed yoga teacher. She works at 6 different places during the week – but does two half days at a school. Today she was told (out of the blue) by the school that because of IR35 she can no longer work for the school unless she becomes a company.
Does this make any sense? Can we argue with the school that she clearly is self employed. If she does set up a company is there any special wording that is required for this new tax situation – or is the necessary detail required in the contract with the school – its not clear if there is a proper contract – she has been working with this school in this way for 8 years at least.
A. This could have come to light due to the public sector rules which came into place in April 2017, and which now means that for any self-employed contractors working within the public sector the public sector body, will be required to determine a contractor’s employment status, and the ‘fee payer’ is required to deduct the relevant tax where IR35 is deemed to apply. This does therefore make sense, although what is interesting is that with self-employed individuals (rather than limited companies) the liability for status would always have rested with the school themselves. It is most likely that this risk has only come light due to the change in legislation. I would initially advise your friend to discuss the decision directly with the school to establish the basis upon which they have made their decision, and to find out whether they will accept any evidence from your friend to counter their decision.
Rubbish answer. What evidence should she provide? Is she really considered to be caught by IR35?
Evidence of working practices review could be provided, which would highlight the nature of the arrangement and demonstrate that employment status has been considered by an independent expert. Based on the limited information provided it is difficult to say with any certainty whether or not the contractor would be deemed an employee in an enquiry. However the nature of the work and the fact that it is undertaken only for a couple days a week; and that the contractor has many other clients (whilst not conclusive in isolation), would suggest that it may be more difficult for HMRC to conclude such an arrangement to be one of employment. It is important to note that IR35 does not apply to sole traders – however ‘status’ does which carries with it all of the same status tests as with IR35.