How do you determine whether you are inside IR35? Conduct a Google search and there are thousands of articles, all trying to understand this issue, it doesn’t appear to be straightforward or particularly clear cut enough, does it? Well, we have done the hard work for you, look no further:
The Main Factors that HRMC Considers:
Control
- How much does the End client control ? Do they control where, how and when you work? If you want to be outside of IR35, you need to be able to demonstrate that you use a degree of autonomy when undertaking a contract. Are you acting more like an employee or a consultant?
- The contractor should be presented with specific tasks to achieve, rather than being provided with an open-ended pile of work.
- Your signed contract and the way in which you work, should not be under direct the influence of the client, you shouldn’t have a direct manager / supervisor who controls how you work, so to speak
- Do you receive staff benefits such as holidays and sick days?
Substitution
- It’s important to understand the difference between operating as an employee versus a company. It is a business to business agreement and the company doesn’t specifically need you, they can take someone else through your company if they have the correct skills and qualification
- Therefore, all professionally drawn-up ‘IR35 friendly’ contracts will include a substitution clause.
Mutuality of Obligation
- This is when the employer expects a worker to undertake work when asked to do so, and the worker expects to be given work on a constant basis. For self-employed people, they would expect a client to hire them to undertake a specific task, with no expectation of further work being provided after the initial task expires.
- The mutuality of obligation question arises when this contract expires. For example, if contract is constantly renewed, it could indicate that the contractor is in ‘employment’. The HMRC argues that “where work is regularly offered and accepted over a period of time a continuous contract of employment may be created.”
Other Factors to Consider and help you decide: Am I in ‘Employment’ and breaching IR35?
| Equipment Provision | Do you use equipment provided by the client, or do you use your own |
| Financial Risk | How much financial risk do you undertake in your work? If all the risk lies with the client, then this is an indicator of ‘employment’ Do you have business liability and professional indemnity insurance in place? |
| Involvement | How involved are you with the client? For example: are you attending staff meetings / staff social events / receiving staff benefits? |
| Exclusive Service | Do you work for just one client? The self-employed typically work for several clients |
Proof of company
Just like applying for a business bank account, the HMRC may want to see the following evidence:
- Your own business website and company email address
- Your own letterheaded paper, logo, and customised invoices
- Is your company registered for VAT?
- Has your company ever employed anyone else or used sub-contractors?
- Has your company invested in your training and upskilling?
- Is your company registered with the Information Commissioners’ Office under the Data Protection Act (for dealing with client’s data)?
For further information:
Are you within IR35? Use this tool created by HMRC to check:
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