WHAT IS IR35?
IR35 is UK tax legislation that seeks to differentiate between individuals operating a genuine business, and those operating in a way more akin to permanent employees who therefore should be taxed as an employee through the client’s payroll.
IR35/Off-Payroll Reform was initially introduced into the public sector in April 2017, and will be extended to the private sector from April 2021.
From April 2021, the rules for engaging individuals through personal service companies are changing. Determining whether the off-payroll working rules apply will become the responsibility of organisation receiving an individual’s services i.e. the ‘client’.
HOW TO DETERMINE WORKER STATUS
Whilst there are numerous status tests to determine a worker’s status, there are three which are key:
1) THE RIGHT OF SUBSTITUTION
In a normal employment relationship, the employee would not be able to send in a substitute to carry out their services. Where a contractor is operating outside of IR35 there should be a right of substitution clause in the contract (the clause should say that the contractor can, in theory, send a replacement). However, it's not enough just to have this clause in the contract and it must be reflected in the working practices of the arrangement. Meaning that if a substitute was provided at any point that substitute would be accepted by the client – provided they were suitably skilled and qualified.
The control test seeks to determine if the contractor has autonomy in the method that they complete their work. Also relevant to control is the degree to which the working hours and location are managed. The contractor should not be subject to client control in relation to the services that they have been engaged to provide in terms of:
- How they provide their service or achieve their results
- When they work, providing they complete the work by the agreed completion date
- Where they work; the contractor should not have to work on the client site to complete their assignment
3) MUTUALITY OF OBLIGATIONS
The test seeks to establish that there does not exist a mutual expectation of continuous work. Clients hire a business to complete a particular service or project and once that service or project is complete, neither party would expect further work.
A genuine self-employed contractor outside of the IR35 conditions, would see the contractor engaged for a specific project or piece of work, and if any further work is offered the contractor would not be obliged to accept it. If they do so, this could be deemed acceptable, but a new, separate contract would need to be agreed for the additional work or assignment. A common misconception amongst contractors and clients is that having an apparently compliant set of written Terms and Conditions guarantees an outside of IR35 determination. In reality, IR35 revolves around far more than the written contract alone, so working practices must also be taken into consideration.
WORKING PRACTICES FOR IR35 COMPLIANCE
Below are some practical steps and considerations contractors should factor into working practices with and for their client to support IR35 compliance:
- A contractor should use their own equipment – laptops, phones, software, tools etc.
- If additional training or qualifications are required for a contractor to complete a particular project, the client should not pay for these. Instead, the contractor should pay for them through their our own limited company with not expectation to be recompensed or reimbursed by the client.
- A contractor should rectify defective or sub-standard work in their own time and expect no additional fees for doing so. This demonstrates financial risk on the part of the contractor which is a factor in determining and evidencing worker status under IR35.
- A contractor should not participate in any companywide events of the client e.g. Christmas parties.
- A contractor should not use the clients’ email domain; instead use their own limited company email or have a clear distinction on the email address or email signature that demonstrates they are an independent business.
- A contractor should have their own independent marketing materials, such as a company website and business cards.
- A contractor should not ask for, nor expect, a staff parking space at the clients’ site.
- Contractors should work from their home and/or own office where possible and keep a record of this via diary notes and/or emails to the client. Keeping a tracked record may be useful in providing evidence should it be required to determine worker status.
- A contractor can take time off by informing the client (ideally in writing via email), and is not required to seek permission. This demonstrates the contractor has a degree of control over their working time and hours. The contractor should remain courteous though. Again, contractors are advised to keep a record of such emails as evidence should it be required to determine their worker status.
- A contractor should not accept any company branded accessories – e.g. polo shirts, business cards.
- A contractor should not use subsidised staff facilities provided by the client, such as canteens and gyms.
- A contractor should be introduced to their clients’ customers as an independent contractor, and where possible should ensure they are named as a contractor on any emails to the client’s customer.
- A contractor should draw up a Confirmation of Arrangements letter detailing and confirming how both the contractor and client will work and act during the course of the contract.
- However small each of these factors seem, be sure to create and maintain an electronic dossier of evidence that can be referred to if required.
HOW AMORIA BOND IS SUPPORTING AND SAFEGUARDING OUR CONTACTORS
We have been planning for April 2021’s IR35 legislative changes and taking action ourselves and with our clients to protect our contractors, including:
Amoria Bond have partnered with Kingsbridge Insurance and invested in the use of their IR35 assessment tool. This tool was developed by their Head of Tax Andy Vessey who is widely recognised as one of the UK's foremost IR35 experts.
The only hybrid tool available on the market, it offers both an automated process but also an in-house expert consultancy for manual review where there is a ‘borderline’ result, there will be a manual review. It also offers an integrated status disagreement process for clients to utilise.
Amoria Bond cannot guarantee that any client will agree to use this tool as they may already have alternative arrangements in place, but our recommendation to all clients is that they utilise this tool.
PEACE OF MIND
IR35 PROTECT COVER through Kingsbridge is available as a stand-alone policy or as an add-on to their core business insurance package.
IR35 Protect covers all IR35 related defence costs up to £100k, per contractor, per year for any claims made in the duration of the policy and in the four years following the expiry of the policy. It also covers all IR35 related tax, interest and penalty costs up to £100k, per contractor, per tax year.
IR35 Protect is underwritten by Zurich Insurance plc.
POST DETERMINATION OPTIONS
If you are a contractor, now is a good time to really assess what is important to you, whether that be money, career progression, skills development, location, flexible working or any other factors. Whatever you decide, Amoria Bond can help you.
If your contract is determined to be outside of IR35, it will be business as usual through your Limited Company. You will be provided with a new IR35 robust contract and will be required to purchase IR35 Protect Cover through Kingsbridge.
If your contract is determined to be inside IR35 you have a number of options, and Amoria Bond can support you every step of the way:
COMPLIANT UMBRELLA SERVICE
You can continue the contract through a compliant Umbrella Service who will make the relevant Tax and NI deductions.
You can continue to operate using your Limited Company and Amoria Bond will make the relevant Tax and NI deductions prior to payment.
COALESCE MANAGEMENT CONSULTANCY
We may be able to offer you permanent employment with our consultancy partner. This means you would be permanently employed by them and placed back onto the project with the client. Usual employment benefits would apply.
LOOK FOR ANOTHER CONTRACT ON AN OUTSIDE IR35 BASIS
Amoria Bond has a wide UK and international client base, so we can help you find an alternative contract with a new client if required.
IF AVAILABLE, CONSIDER PERMANENT EMPLOYMENT WITH YOUR CLIENT DIRECTLY.
Again, Amoria Bond will support you in exploring this with the client.
As Amoria Bond's dedicated Contractor Care Manager I can help you - so please do get in touch.