Six months on from the new Off Payroll Rules there is still confusion over which assignments should fall inside or outside of IR35, with often differing opinions between contractors, recruiters, and clients. So, what are the key factors for identifying whether an assignment falls outside IR35.
- Clear scope and outcome – the nature of the work is a key factor. It’s hard to argue that a person solely engaged to carry out a specified discrete piece of work is akin to an employee. A specified discrete piece of work means the requirement to achieve a clear outcome or deliverable without diversion to other projects or tasks, and without any guarantee of further work upon completion.
- Autonomy and flexibility – the worker has the ability to complete the work as they see fit, subject, of course, to reasonable guidelines or agreed specification, as opposed to an employee who is subject to an employer’s direction. This does not mean that a contractor cannot be subject to some policies and procedures. For example, data protection, health and safety or security. However, these should not go beyond what is normally applicable to external contractors.
- Financial risk – taking on risks of non-payment, liability for the services, or incurring substantial expenditure are key factors in an outside IR35 arrangement. An employee may face the risk of losing their job but does not usually take a risk in the work that they carry out. An employee would not normally provide their own substantive equipment, meet their own training and registration costs, have their own insurance cover nor submit invoices for payment.
- Substitution – the existence of a substitution clause in the contract may be the mantra of many reviewers, outside IR35 if included, inside if not. However this is simplistic. Inclusion just to tick a box will not assist and if overly relied upon, which still appears to be prevalent in the industry, is dangerous. For there to be a right of substitution the contractor must have the right to control and appoint the replacement worker which the original contractor must remain responsible for and continue to pay. This will not exist in most cases and most client hirers will not usually agree such an arrangement in practice. Taking this into account a genuine right of substitution will result in the arrangement being outside IR35, but the converse, the simple inclusion of a clause for the sake of it, will not work and indeed may alienate a savvy client.
Contracts are of course most important, and should support the proposition. A strong contract not only can secure the position commercially, but is a great starting point to capture the nature and description of the work. However the actual working arrangements will always hold the most weight, determining whether HMRC is entitled to tax on an employed basis or otherwise.
The author of this article is Theresa Mimnagh, Associate Director at Lawspeed. Lawspeed group corporate clients benefit from immediate up to date advice on any recruitment sector or employment matter, contract review/negotiation, terms of business and IR35, self-employment, CIS contract templates, trade membership, government representation, accreditation services and an advanced digital contract platform. For more on IR35 or substitution use the search function on the Lawspeed website.
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