As a contractor, it is imperative to have an understanding and awareness of IR35 and how it’s determined to ensure that you are paying the right amount of Tax and National Insurance.
There are many factors that are assessed and considered when determining whether you are outside IR35 (self-employed contractor) or inside IR35 (a disguised employee). If you have multiple contracts, your status can vary from contract to contract and you may well be working within both statuses simultaneously.
How is your contract defined? A contract of service or a contract for services?
Your agreement is a legally binding document and needs to define your relationship to the client or organisation, as well as outlining your working practices and services that you are providing for the specific job.
There are four key areas that are required within the contract to ensure you are outside IR35 are:
- Control – you must have complete control of how the work is completed, using your own methods.
You are not entitled to holidays and time taken off would be under your own discretion.
- Substitution – There should be an opportunity to substitute yourself for another suitably qualified person, or sub-contract whilst retaining the control and risk associated with this.
- Mutuality of Obligation– In general practice, this means that there is no obligation on the client to provide the work nor is there an obligation for you to accept any work which is provided.
A contract that is strong from an IR35 perspective would explicitly stipulate that there is no mutuality of obligations when it comes to work, not within the scope of the current one. There should also be the ability to walk away.
- The Right of Dismissal – Are you required to give a notice period? As a contractor, you are able to terminate the contract immediately or within a short notice period.
Does your working practices classify you as an employee or self-employed?
To be identified as self-employed and therefore outside IR35, your relationship with the client must be business to business. Here are some key factors:
- Supply your own insurance
- The ability to have several contracts running concurrently. Self-employed contractors usually take a higher degree of risk financially when accepting assignments and are held responsible for errors and would need to rectify them in your own time. Being able to exhibit that you are expected to correct errors without charging additional fees.
- Providing your own equipment and training provision that is integral to the completion of the project.
- Payment Terms – If you are paid on a project by project basis rather than receiving a consistent rate of pay like an employee
- You are not entitled to or receiving any employee benefits.
- If the client can stipulate the place where you work and grant permission for time off and how the task is performed, this could be deemed as you working as an employee. It is worth ensuring that you are contracted for specific names of tasks and not perform alternative tasks to fill in the allotted time as this would be deemed as working as an employee, which can lead you to be inside IR35.
- Relationship with End Client –It is important that you perform your duties as a provider servicing a client. This can become more difficult if you are working with the client for a sustained period of time, or exclusively. It is important to maintain the professional boundaries set out within the contract.
- SDC- Supervision – For this to apply there must be someone overseeing another person doing work to ensure that they are actually doing it and that the work is being done to the required standard.
- Direction – this involves someone making another person do their work in a certain way, generally providing direction and guidance as to how the work should be done.
- Control – This applies to where you have someone dictating what work a person does and how they should go about it. This also includes the power to move a worker from task to task as and when priorities change.
For example, if you are being mandated to complete structured workday hours this would imply employment, leaning towards being inside IR35
- Working Hours – If the contract has been set up to be completed under set working hours and isn’t flexible for the contract or service provided, this is more likely to fall inside IR35.
If you still have concerns or questions regarding your preparedness for IR35 or Status Determination Statements please get in touch – we would be happy to help.