A guide to assessing IR35 status, part 4
Posted on 10th September 2019 at 09:03
It’s the penultimate blog in 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! I hope you’ve found the information given to you so far useful.
In part one, we looked into the right of substitution, part two was all about supervision, direction and control, and last week we explored the mutuality of obligations.
As you surely know by now HMRC released their Draft Legislation for IR35 Private Sector change from April 2020 in July, and we have been preparing for this for several months. We know that many of you are concerned about the changes and how they will affect you, but we are here to help.
It is now time to prepare for the changes and equip yourself with the information you need to communicate effectively with your clients to get your IR35 status confirmed. We hope that this blog series will hopefully go some way to help you.
For this week and next week – which will be the final part of this series – we will be taking a look at some of the smaller areas to consider when it comes to off-payroll working contracts. Even though they are not the main three areas HMRC looks at when considering a contractor’s IR35 status, they should be viewed as being just as important.
We’ve covered the main areas – let’s take a look at the smaller ones
Provision of equipment
If you’re a contractor and you supply your own equipment in order to carry out the work your client has engaged you to do, this can help prove your case for being self-employed. If you use your client’s equipment to carry out your work, this could indicate an employer-employee relationship. It’s worth noting that the more essential the equipment is for the work you carry out, e.g. a milk delivery man who does not own his own milk float vehicle may not be accepted by HMRC as being self-employed.
In the 1968 case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance, a court heard that Thomas Latimer had worked as a yard batcher for Ready Mixed Concrete Ltd from 1959 until 1963. The company delivered concrete, but used contractor businesses to do the haulage for them – Latimer became one of these independent contractors, and his contract described him as such. He purchased his own truck in order to carry out this aspect of his job, and he was required to get the company colours put on his truck, as well as wearing a company uniform while he was working. He was only permitted to use the lorry for Ready Mixed Concrete Ltd purposes. He was paid based on his mileage and the load of the lorry.
The question about whether Latimer was self-employed or not came about because the company was not paying national insurance contributions on his behalf. If he was self-employed, they did not need to, but if he was an employee then the company was required to pay NICs.
The High Court judge found that Latimer was indeed self-employed and working under a contract for services (as opposed to working under a contract of service i.e. employed). This was based on multiple factors including the fact that he owned his own vehicle in order to carry out the work, and this meant that the company no longer had to pay his NICs.
A self-employed contractor is wholly responsible for how their business is run, and unlike an employee they use their own equipment and outsource work when required at their own cost. They take entire responsibility for the financial status of their business, and overall take full financial risk when operating.
This one’s fairly straightforward, but it’s important you check with your accountant or lawyer if you’re unsure as to who holds the financial risk in any of your working arrangements.
Method of payment
A self-employed individual needs to consider how they are paid – as in, whether they will charge an hourly, daily, weekly or monthly rate, or whether they will quote prices for each job they’re engaged to do.
Normally, employed people are paid on an hourly, daily, weekly or monthly basis – whereas a self-employed contract would normally be paid per job. This test can be inconclusive though, as there are many professions that are based around hourly or daily rates such as lawyers and accountants – so it is not worth relying on this test in its entirety.
Exclusive services and length of engagement
If a self-employed contractor is only working for one client, this may lead to the presumption that they are in an employer-employee relationship – most self-employed people work for more than one client. HMRC, however, does not see this as a conclusive test for employment status, as many employed people work more than one job and are permitted to do so. A contractor must have the right to take on additional clients on a concurrent basis.
If a contract explicitly declares that a self-employed contractor is not permitted to supply their services to other clients, the contractor is likely to be deemed inside IR35 by HMRC. It is acceptable for clauses to be included in the contract that prevent the contractor from working with the client’s direct competitors, or if any other conflict of interest is created, and this would not automatically deem the contractor to fall inside of IR35.
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 the upcoming changes happening in April 2020, 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 £297 +VAT.
Learn more in this free guide we've created for you, 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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