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.
What, Where, When and How Tests are ostensibly simple tests used by HMRC to determine if a contractor’s employment status falls within the realms of the IR35 legislation.
In the case of a regular employee, an employer would give instructions on what to do (the piece of work to be carried out), where to do it (assign a desk, book a meeting room etc.), when to do it (at what point each stage of the work should be complete), and how to do it (sometimes in the form of training, sometimes general instruction). Generally a regular employee would “fail” all of these tests – i.e. the employer influences each answer.
In the case of a contractor, they would usually “pass” some or all of these tests, however none of them are black and white. For example, although a client would tell a contractor “What” to do generally (the overall aim of the project), they would often not break this down into individual small stages as would be done for an employee.
A contractor would usually be hired for his or her individual skills in a certain area, so a client would not need to tell a contractor “How” to do a job. Although general timelines would be imposed on a project, the client would usually not tell the contractor “when” to complete their work with the level of granularity an employer would with their employee (for example, they wouldn’t ask to have a certain task finished “before lunch”.).
The question of “Where” depends on the nature of the contractor. A software developer would usually not need to be on-site, whereas a consultant would need to be on-site sometimes, but off-site at other times. The key is that the contractor defines “Where” they work – they are not told they must be at a specific desk at a specific time every day.
See Part 1: IR35: What is “Mutuality of Obligation”?
See Part 2: IR35: What is “Substitution”?
See Part 4: IR35: Other Determining Factors
See Part 5: Direction & Control