If you have read our IR35 guide, you will know the importance of getting your contract properly reviewed and you will understand the potential financial implications of being deemed Inside IR35. Remember, HMRC will look for any reason to deem a contract Inside IR35, so a simple error in a contract could be costly. Always discuss a contract’s IR35 status with your accountant and seek professional advice if the situation isn’t cut-and-dry.
Here are ten points that HMRC will consider when looking at a contract. In all situations, where the contract says one thing but the contractor’s working practices are different, the actual working practices will overrule the contract.
Client and Sector
Tightening of IR35 rules in April 2017 mean that, in practice, all public sector work is held to be Inside IR35. If any company has previously failed an IR35 ruling, HMRC can deem all future contracts with the company to be Inside IR35. Watch out! These roles may be re-advertised in a different way to disguise the fact that they are within IR35.
If a contract is based on a permanent contract, cobbled together from various sources or not written for the contractor’s specific engagement, HMRC are unlikely to look favourably on it. If the contractor needs to draft the contract themselves, it’s prudent to take specialist legal advice.
Is the contractor controlled by the client? Or can the client determine the manner in which the work is done, processes to be followed, priority of tasks or where the contractor completes their work?
Can the contractor send somebody else to do the work for them? If the requirement is that the individual completes the work and there is no right to substitution, the contract may fall Inside IR35.
Mutuality of Obligation
Is the client required to give the contractor work and is the contractor required to accept it? Is the contractor free to take other jobs simultaneous to the contract, or can the client veto other contracts? Is the contractor guaranteed a certain number of hours or days’ work? These are key indicators of ‘disguised employment’ and could fall foul of IR35.
Equipment & Materials
Is the contractor able to use their own equipment or are they required to use the client’s equipment? There can often be sensible security and safety reasons for this, however, in conjunction with other factors, this could be used as evidence a contract is within IR35.