To ensure your contracts fall outside the scope of IR35, you need to have an IR35 compliant written contract in place, and ensure that your working practices mirror the terms of the contract. One of the best ways to add strength to your proof of self-employment is to have a letter in place from your client which confirms that your working practices are genuine.
In the event that you are selected for an HMRC IR35 enquiry, the inspector will try to establish what the real working relationship is between the contractor and client, and if they are not satisfied with the information initially provided by the contractor, they may decide to talk to the end client. This can cause problems as the client is unlikely to be an IR35 expert, and the answers they provide may undermine your claims of being ‘outside IR35’
Why draft a Confirmation of Arrangements document?
One of the best ways to overcome this potential problem is to arrange for the client to draw up (or complete) a Confirmation of Arrangements document, which confirms what your working practices are in reality, and may draw a status enquiry to a rapid close if drafted properly by an employment status expert.
The document will contain the client’s answers to a number of questions related to the key IR35 factors which demonstrate whether or not an individual behaves like an ‘employee’ or a ‘self-employed contractor’. The latter would fall outside the scope of IR35 of course.
A typical Confirmation of Arrangements document will show that the contractor is able to provide a substitute, does not work under the direct control and supervision of the client, and provides services to the client in the style of a self-employed consultant rather than one of the client’s permanent employees.
One common problem you may encounter is trying to convince your end-client to sign such a document. This is more likely to be an issue in larger organisations, where everything has to be approved by the ‘legal department’.
Employment status experts, Qdos Contractor, suggest contractors make the following points to clients if they need reassurance:
- It is not a legal document, it is used purely for tax purposes.
- Signing the document is also in the client’s best interest, as having such paperwork in place would minimise the client’s potential involvement in the event of an IR35 investigation.