To ensure that any contracts you undertake are not caught by IR35, you need to be able to demonstrate that you are not a disguised employee, but truly working in the manner of a small business owner. In other words, can you show that you are ‘in business on your own account’?
Should you ever need to prove to HMRC, or a client, that you are truly ‘self-employed’, rather than a traditional employee in all but name, we asked Seb Maley, CEO of IR35 specialists Qdos what type of pointers (both written and in practice) would help to achieve this.
The term ‘evidence’ itself can be slightly misleading given the following doesn’t usually set or overturn an IR35 decision alone. Nonetheless, it’s important to gather anything that points towards a contractor being in business alone.
This could be:
- Company stationery
- Having a business website
- Your own office address
- Having more than one client
- Investing in and using your own equipment, not the client’s
Exercising your right to substitute
Having the written right to provide a substitute is a key pointer towards self-employment, but actually exercising that right is perhaps even more important should HMRC decide to investigate.
Saying ‘no’ to work
Saying ‘no’ to any significant work sits outside the terms of the contract is also a powerful indicator of self-employment. It shows a contractor is not under direct Control and that Mutuality of Obligation does not exist.
Undertaking additional work outside the contract
Suggesting, completing and invoicing for additional work that sits outside the terms of an initial contract is also important. Much like turning down work, it suggests a contractor is not under direct Control to complete any work and that Mutuality of Obligation isn’t present.
Not being tied to the office or the client’s working hours
Increasingly, employees work remotely, so working from home won’t necessarily demonstrate that a contractor belongs outside IR35 on its own. That said, a contractor working from their own ‘business premises’ (whether that’s from home or elsewhere), and outside the client’s typical working hours, are all factors that together start to build a picture of self-employment and not employment.
Demonstrating ‘financial risk’
Because many contractors, particularly those in IT, are knowledge workers, heavy investment in equipment other than technology isn’t usually required – aside from laptops and computer software. But contractors might want to show – if required – that they pay for a business landline, internet, mobile phone costs, along with any marketing, training or insurance spend.
In addition to this, any mistakes made by a contractor should be rectified in their own time, and not the clients. This should be written into the contract to show the contractor is taking on financial risk.
IR35 contract review
A contract review carried out by an independent and unbiased expert is important when strengthening any claim for working outside IR35. Contractors would be wise to have their contract examined by an IR35 specialist who will be able to advise whether it belongs inside or outside the rules from the very start
Working practices review
Over time, a working arrangement might well evolve and the service provided begin to differ from the initial contract. So, contractors should consider having their actual working practices reviewed too. This can carry more weight in an IR35 enquiry given it shows the reality of the working arrangement, not what was outlined in the original contract.
Confirmation of arrangements
A ‘CoA’ letter or document is a vital piece of evidence in an IR35 enquiry. It shows that a contractor, a client and parties in the supply chain completely agree on IR35 status. Read this article for further information and to download a CoA template.
A start and an end date
Project-based work, as opposed to an ongoing agreement, can be a useful pointer towards self-employment. It suggests a contractor is providing a contract for services and not employment.