Deciding a contractors IR35 status can be a difficult job and this is quite clear when you look back over recent years where case law shows that even legal experts have different opinions on what are pretty much the same facts. This has probably been a factor in HMRC changing the focus of where liability sits in the chain, because it is easier to target and bring success against employer intermediaries than individual PSC’s.
The IR35 status check must consider many factors in the round, here are a few key elements to consider:
If the contractor has the right to provide a substitute this is a strong indicator towards being self-employed and sitting ‘outside’ IR35. Simple. However, if there are too many restrictions, e.g. involving an interview process, this would raise questions whether it was a genuine ‘right to’ substitution.
If another suitably qualified contractor could be sent as a replacement to provide the same service/same role, then the contract could most likely fall outside IR35.
There should be a right of substitution clause in the contract (these can also be seen in sole trader engagements) specifying the contractors right to substitute if required, it also helps if there is a bit more detail in writing of how this would work should the need arise.
This topic will be familiar to sole trader engagements, so for a position to be outside IR35 the level of control exercised over the contractor by the end hirer must not be the same to what would be expected in an employer/employee relationship. The following statements would suggest that there is too much client control and would lean towards being inside IR35:
A genuine contractor should have control over how, when and where they work.
If a contract specifies exclusivity, an excessive notice period or a number of hours of work per week, this would point to a position inside IR35. These are similar terms that you would find in an employment contract e.g. for Umbrella PAYE employees, whereas genuine contractors are able to do whichever projects they choose, from whatever client they wish to work with. They should also be free to turn down the work from any client.
HMRC’s Check Employment Status for Tax (CEST) tool, has been criticised for not including MOO, as they believe that MOO will always be present in a contract, which is a clear lack of understanding as MOO is often referenced in case law as a key indicator of employment status.
The bloated IR35 checks don’t stop with the key employment tests. There are also several other factors that must be measured when looking at the IR35 status of a contract:
What we have detailed here is not an exhaustive list and just goes to show the complex nature of making the right call on a contractors IR35 position.
Deciding a contractors IR35 status can be a difficult job and this is quite clear when you look back over recent years where case law shows that even legal experts have different opinions on what are pretty much the same facts. This has probably been a factor in HMRC changing the focus of where liability sits in the chain, because it is easier to target and bring success against employer intermediaries than individual PSC’s.
The IR35 status check must consider many factors in the round, here are a few key elements to consider:
If the contractor has the right to provide a substitute this is a strong indicator towards being self-employed and sitting ‘outside’ IR35. Simple. However, if there are too many restrictions, e.g. involving an interview process, this would raise questions whether it was a genuine ‘right to’ substitution.
If another suitably qualified contractor could be sent as a replacement to provide the same service/same role, then the contract could most likely fall outside IR35.
There should be a right of substitution clause in the contract (these can also be seen in sole trader engagements) specifying the contractors right to substitute if required, it also helps if there is a bit more detail in writing of how this would work should the need arise.
This topic will be familiar to sole trader engagements, so for a position to be outside IR35 the level of control exercised over the contractor by the end hirer must not be the same to what would be expected in an employer/employee relationship. The following statements would suggest that there is too much client control and would lean towards being inside IR35:
A genuine contractor should have control over how, when and where they work.
If a contract specifies exclusivity, an excessive notice period or a number of hours of work per week, this would point to a position inside IR35. These are similar terms that you would find in an employment contract e.g. for Umbrella PAYE employees, whereas genuine contractors are able to do whichever projects they choose, from whatever client they wish to work with. They should also be free to turn down the work from any client.
HMRC’s Check Employment Status for Tax (CEST) tool, has been criticised for not including MOO, as they believe that MOO will always be present in a contract, which is a clear lack of understanding as MOO is often referenced in case law as a key indicator of employment status.
The bloated IR35 checks don’t stop with the key employment tests. There are also several other factors that must be measured when looking at the IR35 status of a contract:
What we have detailed here is not an exhaustive list and just goes to show the complex nature of making the right call on a contractors IR35 position.
