It’s complicated, but there is one basic rule to bear in mind: does the engagement look and feel like employment? If it does, it is more likely IR35 will apply. To help the courts understand what ‘looking and feeling like employment’ really means, they have come up with three main factors to consider, and a handful of supplementary ones.
The three main factors are:
Are you required to carry out the work yourself, or you can you send a substitute to do it in your place? Employees cannot send a substitute, so being required to offer personal services points towards IR35 applying.
What degree of supervision, direction and control does your client have over what you do? Do they tell you how to do the work? Employees are controlled by their employer, so the existence of control points towards IR35 applying.
Is your client obliged to offer you work beyond the agreed project, and are you obliged to accept it? Employees and employers have mutual obligations, so the presence of MOO points to IR35 applying.
You’ll need to be able to demonstrate that at least one of these factors does not apply to your contract and working practices to avoid IR35 applying. For example, if you have an unfettered right to send a substitute, IR35 doesn’t apply, regardless of control and MOO.
Sometimes it’s not clear whether the factors above apply or not. In these instances, the following may be taken into consideration:
How integrated into the client business are you? Are you ‘one of the team’ or is it clear to everyone that you work separately? Separation from the client business is a good indicator that IR35 doesn’t apply.
Employees use equipment supplied by their employer. Independent contractors use their own equipment. This test doesn’t always work in practice. There are often good reasons – such as safety and security – why an independent contractor would use the client’s equipment.
If you make a mistake, do you fix it on your own time, or the client’s? Independent contractors would typically be expected to fix it on their own time.
This one is sometimes jokingly referred to but there is an important point behind it. Do you attend staff entertainment events, paid for by the client? If so, it could be unhelpful for your IR35 status.
In an IR35 tribunal, the judge will consider all these factors and others to try to determine if, were it not for the existence of your limited company, the relationship would be considered employment. If the judge decides that it would, IR35 will be applied.
There are a few simple steps you can take that will dramatically reduce the risk of IR35 being applied to your engagement. The key is to make it clear to all parties that you are not an employee and should not be treated like one. If you have the following in place, it will make it much easier to explain to a client, agency, or indeed HMRC, that IR35 should not apply.
Looking for more guidance?
Have you ever had a business idea that needed significant capital to start? Angel investors offer an alternative to business loans or venture capital (VC) funding...
In this guide, we run through the key things you need to know about IR35 as a self-employed professional, including the difference between 'inside' and 'outside' ...
Even the most resilient self-employed professionals can be thrown by unexpected challenges, including power cuts, internet outages, office thefts and more. Find o...