Now more than ever, contractor need to be ready for the consequences of IR35 legislation.
It’s been over 18 years since the IR35 intermediaries legislation was first implemented. Designed to tackle the issue of “disguised employment” among contractors, and the resulting loss of revenue for HMRC, the legislation has changed dramatically since its introduction in April 2000.
First off, you may want to assess the contracts you have with the companies you are working for. The contract is the first place that HMRC will look when trying to determine whether a piece of work falls inside or outside the scope of IR35. Within the contract, look for elements of “control”. If a contract stipulates, for example, that you must be in work for certain times and adhere to a certain dress code, we would advise you to renegotiate the terms of the contract.
Trying to explain the legal tests which govern IR35 can be difficult: they may come across as rather abstract! To bring the conversation back down to earth, we will provide examples of situations that could indicate you fall within the scope of IR35. A list of examples is shown here:
A contractor could fall within the scope of IR35:
- If the contractor isn’t able to bring a substitute to replace them when they’re ill or on holiday. By not being able to have someone who can carry out services when they’re not available, contractors may fail the “substitution” test. That said, many industry and technical specialists have skills that can’t be replicated by a substitute.
- If the contractor is being paid on the basis of time spent. Contractors being paid on the basis of time they spend working, rather than on a project basis, may look more like full time employees in the eyes of HMRC.
- If the contractor is given set working hours. Getting told what time you need to come to work and what time you need to leave might indicate an employee/employer relationship.
- If the contractor only has one client and they work for that client five days a week. There may be exceptions to this rule if the contractor is being brought in for a big job over a short period.
- If the contractor is not only told what projects they have to do, but how they have to do those projects. A key element of “control” is that contractors still have a say in the way they work. While the engaging company sets the objectives of the work, they shouldn’t be telling the contractor how to carry it out.
- If the contractor attends staff parties or meetings. Attending staff parties or team meetings or eating in the staff canteen could all indicate that a contractor is an employee rather than a contractor.
We would like to emphasise that no single situation is likely to determine whether the work falls inside the scope of IR35. All the merits of a case must be considered and the case itself is decided on an individual basis.
With a greater understanding of what falls inside and outside the scope of IR35, with the help of our accountants at The Vine Accounting,you should feel more prepared to make decisions about future contract work.