In this guide, IR35 expert, Martyn Valentine, considers the topic of contract duration, and whether the length of an assignment has any bearing on a contractor’s IR35 status.
When would contract length be an IR35 factor?
This is a common misunderstanding about IR35. 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 the mutuality of obligations, substitution and control.
The length of an engagement is not a significant factor and can usually be explained to an HMRC inspector if:
- a professional contractor has been engaged to deliver a specific project.
- has a genuine right to substitute, and…
- is not under the substantive control of the end-client.
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.
Take the example of a professional contractor who is initially engaged to complete a project. Over time, he is routinely offered new (perhaps unrelated) work by his client.
If the contractor always accepts such offers, there is a real risk of an inference of mutuality of obligation. As a result, IR35 will apply 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 before the start of the engagement. The same applies to any contract extensions.
Martyn Valentine is the director of The Law Place Limited. You can also read his article on the importance of the right to provide a substitute in determining IR35 status.
How does the 24-month rule affect IR35?
This section was added by the IT Contracting team.
The 24 month rule allows workers to claim travel costs between their home and client’s offices. But only if the workplace is deemed to be a “temporary” one.
Importantly, there is no connection between this 24-month rule and whether or not your work is caught by IR35.
Some workers believe that if you work for the same client for 24 months, then you are automatically ‘inside IR35’.
As this article demonstrates, there is no set time limit on how long a contractor can work for a particular client.
Your IR35 status is determined by a wide variety of factors.
