IR35 is a sticky piece of legislation originally introduced under the Labour Government in 1999. Fully titled “IR35: Countering Avoidance in the Provision of Personal Services”, the purpose of the measure is to eradicate the practise of an individual providing services to a company as a Contractor, when in fact they are existing as an employee. This has led to many new and existing contractors wondering if their work falls in or outside IR35. In this series we will examine the main indicators of IR35 status.
We’ve already covered the three key determining factors used by experts when investigating a contractor’s IR35 status (Mutuality of Obligation, Substitution and “The What, Where, When and How Tests”), however there are some other factors that can be used to make a decision. While usually not as important as the other three tests, these factors will nonetheless influence your perceived IR35 status, and are worth considering.
Being “In Business On Your Own Account”
To not be classed as a “disguised employee”, a contractor must be able to prove they operate as a separate business from the one they are employed by. Ways to decide this include
- If a contractor markets their own business separate from that of their clients
- If a contractor operates their own website
- If a contractor is free to leave their client at any time
- If purchases, subscriptions and equipment are made by the contractor and charged back to the client, as opposed to being bought through the client company
- If one client is dealt with on an almost exclusive basis, or if many clients are dealt with concurrently
- If your business is taking financial risks to stay in business
Being “Part and Parcel”
If a contractor can be reasonably seen as part of the furniture at a client’s company, there is a good chance they will fall foul of IR35. Factors to take into consideration include -
- Taking part in company outings
- Signing in at the client’s office as a guest every day
- Performing work for the client outside the remit of the original contract
The key to staying outside IR35 is proving, beyond any shadow of a doubt, that you operate as your own business. Maintain a home office, invest in equipment yourself, and document everything to prove your independence.
See Part 1: IR35: What is “Mutuality of Obligation”?
See Part 2: IR35: What is “Substitution”?
See Part 3: The What, Where, When and How Tests
See Part 5: Direction & Control