IR35 is a shapeless beast. Since its inception back in 2000, and through all the multiple revisions of the legislation, IR35 has become the contractor’s bogeyman. The first flurry of letters has been sent from HMRC to GSK contractors - almost 1,500 of them in fact. No matter how intimidating the off-payroll rules may seem, don’t bury your head in the sand – there are steps you can take to make sure you’re on the right side of the legislation.
How do I know if I’m inside or outside IR35?
As part of the latest IR35 reform, the responsibility for determining whether a worker is inside or outside IR35 has been shifted from the contractor to the end client. This could make life a little harder for contractors if their clients don’t understand the off-payroll rules, or subject them to a blanket determination. We advise working with your client to determine your employment status, but to do this you should have a good idea yourself of which side of the IR35 fence you sit.
There are three key status tests that are generally accurate markers as to whether you’re inside or outside IR35. These are:
How much control do you have over your working day? If you have the below in your contract, you could be considered inside IR35:
- inflexible start and finish times;
- specific days you must work for the client;
- lunch break times and duration;
- specific clauses stating the client has supervision and control over your work.
Can you supply a substitute, even hypothetically? If you aren’t well enough to attend a job, could you send someone in your stead to complete the work? If so, then you would most likely fall outside IR35.
However, there should be a right of substitution clause in your contract specifying your right to do so as a contractor – if the client has specified that you can’t supply a substitute under any circumstance, then you could be in trouble. Contractors are free to send someone else in their stead, provided the work is completed to an equal standard.
Mutuality of Obligation (MOO)
Can you choose the jobs you work? Does one main client dictate whether you can accept other clients while working with them? If your contract specifies exclusivity or states any amount of obligated hours of work a week at a set rate, then you could fail IR35.
Contractors are able to take whichever projects they choose from whatever client they wish to work with. They should also be free to turn down work from any given client.
While it’s good to have a grasp of what aspects of your contract could affect your IR35 status, it’s always best to get an unbiased professional contract review.
What contract review should I get?
One of the most common suggestions across IR35 forums and guides to help you stay on the right side of the taxman is to get a contract review. Contract reviews are excellent at helping you understand where you fit into IR35 and what, if anything, you need to change to stay clear of the legislation. However, there is a plethora of review options to choose from – which one do you need?
IR35 Contract Review – Assessment
An IR35 Contract Review - Assessment covers off the key points in your contract that relate to IR35. This is a great option for those that are confident that they’re not inside IR35 but are required to have a contract review to take out IR35 insurance or have been asked to have a review by their accountant. Read more about this product here.
IR35 Contract Review – Full
An IR35 Contract Review – Full is a deep dive into your contract. This is the best choice for those that are confused over IR35, are genuinely concerned about their employment status, or want as much detail as possible in any contract feedback. Read more about this product here.
IR35 Working Practices Review
The IR35 Working Practices Review is a different product to the contract reviews we offer but often accompanies them. Instead of submitting your contract to us, you instead fill out a questionnaire of around 30-50 questions (depending on your responses at certain stages) that examine your day to day work life, how you do business with your clients, and whether you behave as a contractor should in a workplace.
While contract reviews are widely encouraged, it’s actually your working practices and client relationship that HMRC will put under the microscope in the event of an IR35 investigation. If you’re worried about your employment status or have clients that are concerned with where you fall in the off-payroll rules, it’s advisable to double up with a Working Practices review.
It’s important to remember that you should get your contract reviewed again every time its wording is edited. We offer a Refresher contract review for exactly this purpose – if we’ve already reviewed your contract previously, we’ll just assess the new or revised clauses.
What happens if I’m found inside IR35?
If you fail an IR35 test, you can expect to pay significantly more in tax every year, which would amount to a huge chunk of money absent every month. You also still wouldn’t benefit from employment rights or have a contract of employment with your client, so you could face critical financial issues with no real benefits or protections to speak of. It’s important to take the necessary precautions to avoid this situation.
Of course, if you are a genuine professional contractor, freelancer or consultant who is in business on your own account, you shouldn’t have anything to worry about. Read up on how the legislation works and apply best practice. It would also be worth having a defence prepared in case you’re investigated by HMRC; whilst you may know that you’re legitimate, IR35 determinations are notoriously subjective.
Larsen Howie reduced-rate IR35 consultancy for GSK contractors
Our IR35 consultancy team is available to provide rapid-turnaround help for all GSK contractors that are concerned about their employment status. In light of HMRC's targeting of GSK contractors, we've decided to offer reduced hourly consultancy fees to make the best advice and defence more accessible to those affected.
Our IR35 specialists are lead by Head of Tax Andy Vessey ATT, defender of over 500 employment status cases, of which he's won the overwhelming majority. Find out more about what we can offer you on our dedicated GSK contractors page here.
Alternatively, call us on 01163 800 400 or email us for no-obligation advice.