A guide to assessing IR35 status, part 2: Supervision, Direction & Control
Posted on 27th August 2019 at 11:31
As part two of this five-part blog series about IR35 and how a contractor might be assessed to be inside or outside the scope for off-payroll working.
You should note that it is imperative that you’re up to date and fully compliant with off-payroll working rules to avoid investigation and potential penalties. As you will probably know by now, HMRC released their Draft Legislation for IR35 Private Sector change from April 2020 last month. The team at Effective Accounting has been preparing for this for several months and know that many of you are concerned about the changes and how they will affect you.
It is now time to prepare for the changes and ensure you are equipped with the information you need to communicate effectively with your clients to get your IR35 status confirmed and move forward, and this blog series will hopefully go some way to help you.
Last week, we discussed how the contractor should have the right to substitute their service to the end-client with another person if required. You can read more about that here. This week, we explore supervision, direction and control, and how to work it into a contract so that you have less risk of falling inside IR35.
What is supervision, direction and control?
When a contractor can prove that they keep control, this can help them in not getting caught out by IR35. If a contractor can show that they have significant control over the services to be completed and the manner in which they are carried out, this shows that they have control, rather than the client.
In an employer-employee relationship, the employer has a significant level of control over their employee and when, where and how they carry out the work they’re hired to do. A self-employed person can take instruction from their clients, but they do not fall under any explicit control by the client as, ultimately, they are in charge of what work gets completed, when it happens and how it is carried out.
It should be noted that if it is written into a contract that a client has the right to control the delivery of services, even if they do not, this would be enough for HMRC to decide that the client is operating with a degree of control over the contractor.
The ‘where’, ‘what’ and ‘when’ of control
Where a contractor works is not normally a factor when it comes to control, however if the contractor works from home, this is normally a good indication that they are in control because there wouldn’t be any set hours, and nobody checking that the contractor is working at a specific time. When the contractor works is more subtle e.g. if a client tells the contractor that they must be available at certain times, this could indicate some level of control.
The ‘what’ of control is a much stronger a factor for HMRC when deciding if a contractor falls inside IR35 or not. ‘What’ applies to the scope of the work that the contractor has agreed to e.g. if the contractor realises that they need to carry out additional duties that are not specified in the contract, are they able to continue on and do this without asking the client first? If they must seek approval, this may show that there is some form of control in the working relationship. Similarly, is the client able to change the contractor’s role without consulting them first? If so, this may also indicate control.
It could be argued, however, that in the former instance, most people performing a role in a workplace – whether as a contractor or employee – would have to check with their client or employer if they had to perform unexpected additional duties within their role, so it doesn’t necessarily automatically point to the client being in control.
What should be written in a contract to show that the contractor is not supervised, directed or controlled by the client?
It should be noted that the absence of a specific clause about supervision, direction and control in a contract does not necessarily mean that the contractor would automatically fall inside IR35. However, to be on the safe side, contractors should do their utmost to ensure there is a clause in the contract somewhere.
Here is some suggested wording you could include in your ‘supervision, direction and control’ contract clause:
Neither the [Employment Business] nor the [Client] shall seek to or exercise any supervision, direction and/or control over the [Contractor] or its [Staff] in the manner or execution of the [Services].
Please note that you should always consult with your accountant or lawyer before you add or change any wording in any current or future working contracts.
Next steps: get your IR35 Private Sector: 5-Step Action Pack today!
To support you through these changes, we have put together an IR35 Private Sector: 5-Step Action Pack, which includes:
Full written IR35 Contract Review;
30-minute debrief call with Nicola to discuss the outcome of the IR35 Contract Review and its impact on you and your limited company;
Communications Pack including email and letter templates to send to your client to get your communications started, and in the event that you need to appeal;
30-minute call to discuss your very own action plan.
We are bundling all this together for our clients for just £237 +VAT until 1 September, when the price will increase to £297 +VAT.
Learn more in this free guide we've created for you, which you can download by clicking here.
Don't wait for your client to come to you.
Be proactive, take the initiative and get planning for April 2020!
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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