Q. With IR35 changes having been postponed by a year, now that I’m able to set my tax status until April 2021, which area of the legislation matters most? How can I guarantee my outside IR35 status? Some contractors I chat to say having the right to provide a substitute will demonstrate my outside status. Others think having multiple clients should do the trick. Is this correct?
A. As frustrating as it is, you shouldn’t rely on one aspect of the IR35 legislation to prove your outside IR35 status. A number of different factors must be considered when determining status and it’s important that you stand back and focus on the overall picture, rather than concentrating on, say, the right you may have to provide a substitute or how many clients you have simultaneously.
For example, the substitution clause is important in showing that you do not provide a personal service to your client, but it doesn’t automatically mean that you belong outside the clutches of IR35. The same goes for the number of clients you may have at any given time – it helps strengthen your status as a genuine contractor, but you cannot and must not rely on this alone when determining IR35.
There are, however, three so-called key IR35 status tests, which when passed should put you in a healthy position to evidence that you are not a disguised employee. These are ‘Personal Service’, ‘Control’ and ‘Mutuality of Obligation’.
As a genuine contractor, you mustn’t provide a ‘Personal Service’ to your clients in the way that an employee does. You shouldn’t work under the direct ‘Control’ of your client either, as an employee will. Finally, there should be no ‘Mutuality of Obligation’, meaning your client isn’t obliged to offer you work and you aren’t obliged to accept this and deliver your services. Each of these need to be evidenced in the contract itself, before being reflected in your day-to-day working practices, which demonstrate the working reality of your engagement.
While meeting these three criteria will certainly put you in a very strong position to compliantly work outside IR35, it’s also crucial that you think, behave and work as a true business owner – from being financially responsible for any mistakes you make when providing your services, to having a business website, business insurance and even company stationery.