In April 2021, HMRC impose further tightening of the existing IR35 legislation, originally brought into force over 20 years ago.
The latest changes mirror similar changes in the Public sector whereby ‘end hirers’ are given responsibility for the decision-making over a Limited Company contractor and their IR35 status. Fundamentally, these changes are designed to tackle what HMRC deem to be ‘disguised employment’ whereby a self-employed contractor is deemed to be engaged under an assignment that could too closely resemble that of an employed engagement, based on certain conditions of their assignment. To debate every point or ‘marker’ contributing to an inside or outside IR35 status decision would not be possible in such a short article, however, below are some of the significant indicators that a contractor, engaging via a Limited company, is truly contracting, and not engaging more closely in line with their employed colleagues.
1. Is your engagement project-based? Are you paid on a project basis or an hourly/ daily rate?
A key indicator of genuine self-employment is the way in which an engagement is agreed with a contractor. Often contracts will be offered to work on a particular project and then priced in line with the completion of the project, rather than an open-ended engagement based on an agreed hourly or daily rate. Whilst this may not, in isolation, prove a contractor to definitively be outside of IR35, it is certainly a strong indicator.
2. Are you at financial risk if something goes wrong?
One of the advantages of genuine employment is the blanket of safety it provides, should something, during the working day, go wrong. A genuine contractor will be responsible for providing their own insurance, and, should something go wrong, they will typically be held accountable to fix it, at their own cost. Being financially liable is also, therefore, a good marker for self-employment.
3. Have you become ‘Part & Parcel’ to an organisation?
True contracting typically has a finish date, at which point the contract ends and the contractor leaves the engagement with their client. Contracts that go on for a more prolonged period can start to seem more like an employment engagement than a genuinely self-employed one. Genuine contractors would typically not enjoy the same comforts that an employee would when working with a client. Aside from the obvious employment benefits, employees should typically be more engrained in a business than a contractor coming in to complete a particular contract and then leaving on completion.
4. Are you in business on your own account?
For the purpose of IR35, it is important to establish that the business is behaving like a ‘real business’. Typically, genuine businesses may have a website and associated company email addresses. Such businesses may also have a designated office space from which the business is based. Contractors will often use their own equipment or supplies when undertaking a contract which might typically be factored in when agreeing on the price of the contract with the client. Proving yourself to be a genuine business, working on your own account, could have a strong bearing on the status of your assignment.
5. Do you work exclusively with one client?
Another important indicator of genuine contracting is if you are engaging with multiple clients, across different projects. This is something that employed individuals are highly unlikely to do, thus, again highlighting the differences between employment and self-employment.
Importantly, IR35 decisions are made up of a huge variety of factors, including some of the above points. With this in mind, it is worth remembering that there isn’t one specific point that can, in isolation, provide a definitive determination that a Limited company sits inside or outside of IR35 and all areas of an assignment should be reasonably reviewed and considered.
To our white-collar clients, RFS offers a sophisticated, insurance-backed, status determination tool, powered by industry experts, Kingsbridge.
For further information on how we might support you during your IR35 status decision-making journey, contact us today.