In the latest in a series of articles which tackle common IR35 questions, Martyn Valentine turns his attention to contract duration, and whether the length of an assignment has any bearing on IR35 status.
When would contract length be an IR35 factor?
This is a common misunderstanding about IR35, and all things being equal, the length of the engagement does not automatically trigger liability for extra tax. In the aviation and defence sectors projects can last many years and a professional contractor’s involvement, for example, to design part of a wing for a new Airbus aircraft or an air defence system for a Type 26 frigate, may last much longer than a typical IT project.
The ‘irreducible minimum’ in determining IR35 status is mutuality of obligations, substitution and control. If a professional contractor has been engaged to deliver a specific project, has a genuine right to substitute and is not under substantive control by the end-client then the length of the engagement is not a significant factor and can usually be explained to an HMRC inspector.
Conversely, if a professional contractor has been engaged to provide staff to cover for the end-client’s employee for a fixed term then IR35 is much more likely to apply.
Problems can develop over time
However, significant problems can arise where complacency sets in or the nature of the relationship between the parties changes over time. If a professional contractor was initially engaged to complete a project but over time the end-client routinely offers new (perhaps unrelated) work and the professional contractor always accepts such offers there is a real risk of an inference of mutuality of obligations and therefore IR35 applying to the engagement as a whole. Remember, IR35 applies on an ‘all or nothing’ basis. A further issue is structuring the engagement as a fixed term.
This emphasises the importance of getting competent legal advice prior to the start of the engagement and for any extensions to your contract.