What kind of working practices and contractual conditions are HMRC looking for to see if you're inside or outside IR35?
Below are a few hints, tips and pointers. Please be aware this is not a comprehensive list, IR35 regulations are extremely complex but the brief notes below should provide a rough indicator:
Control: Are you free to work under your own control i.e. not managed by the client?
Financial risk: Although profit share is common place in the employed world, it is without exception in owner managed companies. Also, employees rarely risk financial loss by being employed, whereas if you buy assets such as PC's, laptops, servers, printers, office equipment or a client fails to pay you as director of your company you will most definitely experience financial loss.
Substitution: In your contract do you have a clause about using somebody other than you to perform the task your company has been contracted to do?
Provision of equipment: Will you be using your own equipment? Sometimes this is very difficult and allowances are made where security measures prohibit the use of say using your own laptop.
Right of dismissal: Do you have a fixed notice period. The Revenue will argue that this is like an employee, therefore there should be provision in your contract for immediate termination should the client choose to do so.
Employee benefits: Plainly speaking you can forget about receiving any holiday pay, sick pay, pension contributions, training courses, Christmas dinners or the annual staff summer outing.
Please remember, HMRC don't just look at the above - they review EVERYTHING in an effort to establish if you are really an employee or a director running, managing and controlling your own limited company. It doesn't matter if you are working for the same client for one month or twenty years. It's what you're doing and your level of risk, responsibility, liability and control.
HMRC have now published their IR35 employment status checking tool that will be used to determine IR35 Contract status for Public Sector contracts. Click here to use this service.
If you have any questions about IR35, becoming a contractor or would like an IR35 contract review, then please get in touch with a member of our new business team, who will be happy to answer any questions that you may have. Our new business team can be contacted on 01253 362062 or firstname.lastname@example.org.
For more information on IR35 please read the following guides: