What contractors can do to determine and safeguard their IR35 position
IR35 is at the forefront of our every conversation. Amidst speculation around what the future holds due to upcoming private sector reforms and a growing number of IR35 investigations attracting attention, it’s easy to worry about what this all means for your tax status as a contractor.
Despite the tax office recently losing two IR35 Tribunals in just one week, things haven’t always gone the way of contractors. For example, former BBC presenter Christa Ackroyd lost a £400,000 appeal against HMRC over the status of her contract with the broadcaster in October. Meanwhile, in September, three freelance BBC presenters also lost their appeal against HMRC and were liable to repay income tax and National Insurance contributions.
In light of the growing number of IR35 cases, it’s important to ensure that your IR35 status is protected – regardless of the fact that from next April, unless you work with a ‘small’ private sector firm, you will not be in charge of determining it. The responsibility will transfer to your client, with the liability shifting from you to the fee-payer in the supply chain.
Given the taxman can investigate contracts dating back six years, being aware of the criteria commonly used by HMRC to determine IR35 status can help you to better structure your working practices, protect your IR35 position and ensure your compliance.
Use your right of substitution
The right (and ability) to provide a substitute if you are unable to undertake your duties is important to help distinguish you from an employee. In order to best evidence your case, it could be helpful to show that you have a substitute at the ready if you are ever unable to undertake your work. Better still, try exercising your right of substitution.
Show you’re in control
When you provide your services through a limited company, it means that it’s likely you will have a greater level of control over your working hours and conditions, when compared to an employee. HMRC will consider such factors as; what you work on, how you complete the work in addition to where and when. Where possible, it could be helpful to show where you have negotiated your contract, such as working location and pay.
Prove Mutuality of Obligation falls short
As an employee, your employer would ask you to fulfil certain tasks even if they don’t fall under your remit. For contractors, it’s generally accepted that you will be required to fulfil only what was agreed upon with your client for a set amount of time – and to move on once the work has been completed.
Mutuality of Obligation, also known as MoO, can be hard to evidence. However, a good example would include any instances where you have declined work. If you have or plan to decline work, as with all things IR35-related, make sure you do it in writing, just in case HMRC decides to investigate.
What else?
A number of other factors should be considered when determining IR35 status. These include:
- Equipment – show that you purchase and use your own tools for work
- Financial risk – prove that you have invested in your company or have rectified any problems at your own cost
- Genuinely in business – illustrate that you are providing services to multiple clients at one period of time
Have your IR35 status reviewed
Arguably, the safest way to set or protect your IR35 status is to gain an independent review from an IR35 specialist, like Nixon Williams. During an IR35 review, our IR35 experts will gather all of the information surrounding your contract and working practices to make an unbiased determination. If it’s likely that your contract will be caught by IR35, you will be provided with a list of recommendations to help you restructure your contract and working practices to operate compliantly outside the legislation.
Does your contract fall inside or outside IR35? Have your IR35 status reviewed today.
I thought the client was (in case of private sector will be) deciding if the role was inside or outside IR35.
And if the client gets it wrong then HMRC will chase the client for the NI contributions for both parties: employer and deemed employee.
Generally speaking only big companies can afford contractors, so the onus of deciding IR35 will be on the client. In some ways this makes it easier for contractors.