Figuring out whether or not IR35 effects you can be tricky, but there are 3 key areas that will determine your status:
- Personal service
- Mutuality of Obligation
- Control of the worker
If it can be shown that any one of these factors does not exist in the way you do business, you will not be affected by IR35. This is because the relationship with your client will be seen as a contract for services, rather than a contract of employment.
Lets look at these three key areas.
If you have to provide your services personally, this is usually an indicator that youre an employee. A contractor, on the other hand, could send a substitute to complete the work on their behalf. A contractor could also reassign the work. However, the right to send a substitute must be absolute and not restricted to such an extent that you have to basically perform the work yourself.
Mutuality of Obligation
To qualify as a contractor, there must NOT be a mutuality of obligations.
There are 2 obligations to consider:
- there is an obligation for one party to offer work
- if work is offered, the other party is obliged to accept it
Mutuality means there is an expectation that the work must be seen through to the end by your company.
Put simply, a contractor must work project to project, with no obligation to carry on working for the client after the task has been completed. A contractor also has the right to ditch a project part way through. To qualify as a contractor, make sure these two factors apply to you.
Control of the Worker
As a contractor, its typical that youll work to a comprehensive job specification.
This specification would outline:
- the service that you provided
- where it is to be provided
- the hours in which it needs to be provided
The service delivered by an employee, however, is controlled. For example, if your contract mentions that you must submit to guidance, appraisal or monitoring, this is an indication that your work is being controlled and that youre an employee, not a contractor.
As well as the 3 key areas above, you also need to be aware of the following.
Financial records - A contractor will receive payment when work is completed, while an employee will likely get paid at regular intervals.
Alternative work - If youre contractually forced to have one client at a time, youre probably an employee, not a contractor.
Equipment - Unless theres a sound reason (such as for safety, security, or practical reasons) you should be using your own kit, rather than tools supplied by your client.
Blacklists - Check to see whether your client has had any IR35 problems in the past
Corporate involvement - You could be affected by IR35 if you have any involvement at all with the clients corporate structure. This applies to even the smallest involvement, such as whether you have a security pass to your clients building.
Questions to ask yourself when assessing eligibility:
- What is the nature of the engagement? What are you being asked to do? Is the work project or task-based??
- Have you worked at the same client previously as an employee under PAYE? If yes, can you confirm the differences, if any, between the current role and that which you held previously?
- What's the working relationship with your client? Are you supervised on a day-to-day basis, or do you just update senior management? If you provide updates on progress, how frequently?
- Is there a standard working week, and if so, are you obliged to be present within those hours?
- Who controls the nature of the work; can you decide the how, when, where and what? (Please state if you can work off-site or if there are multiple sites: who decides where you work) How do you agree the work to be completed?
- Are you able to send a substitute? Is this subject to any restrictions?
- Have you sent a substitute on this engagement before?
- Are you obligated to accept additional work provided by the client?
- Do you work in the public sector?