Do office Christmas parties impact your IR35 status?

29th November 2017
Written by Nigel Nordone

Becoming part and parcel at Christmas

With Christmas just around the corner and invites to social gatherings coming in, it is important for contractors to ensure that due consideration is given to their IR35 status, before taking part in such festivities.

Whilst attending such events will not deem your engagement to be caught by IR35 alone, we always advise that independent contractors pay to attend such events, otherwise it could be seen by HMRC to be a negative issue weighing against an outside determination.

In the event of an investigation, HMRC have historically based their arguments on the three key tests determined by the Ready Mixed Concrete case; right of substitution, control, and mutuality of obligation (MOO), however HMRC may not always stop there.

HMRC are likely to consider whether the contractor is taking a financial risk, how many other clients the contractor has, and if the contractor is considered part and parcel of the client’s workforce. It could therefore be argued that attending social events organised by an end client could damage the IR35 status of an engagement.

HMRC do not usually consider ‘part and parcel’ as a determinative IR35 test, however it still features within their IR35 'Employment Status Manuals' and is covered within HMRC’s online ‘Check Employment Status for Tax’ (CEST) test. The key areas in testing whether a contractor is ‘part and parcel’ are:

  • Is the contractor ever paid for time away from the services? For example, sickness and holiday pay.
  • Having a position of authority i.e., holding an ‘office’ within the client organisation.
  • Does the contractor have any ‘line management’ type duties? These include hiring and firing workers, delivering appraisals and discussing employees pay.
  • Do contractors interact with end client customers as a representative of the client.

The above factors would certainly have an impact on IR35 status. Other more minor issues include:

  • Accessing discounted canteens, gym memberships, training, or other subsidised benefits such as social events.
  • Being part of the end client telephone list, having a personalised email address or signature.
  • Not being clearly identifiable as a contractor, for example by not wearing a visitor/contractor ID badge.

To conclude; part and parcel is usually not a determinative test by itself, however it is important to be aware of the potential ‘red flags’ which could work against an outside of IR35 determination.

If it has been determined that your Personal Service Company is working compliantly in an outside of IR35 role, for example – having a clear right of substitution, autonomy over the provision of the services, a clear lack of MOO and a good demonstration of taking financial risk; then I see there being no problem in putting on your glad-rags and joining in with the social Christmas celebrations!

[Updated: 08/06/22]

Nigel Nordone
Written by
Nigel Nordone
Nigel Nordone is the Head of Tax at Qdos, after working for HMRC for over 20 years as a tax inspector. We’ve decided to forgive him for this little transgression as his knowledge of how HMRC handle enquiries and compliance checks is really beneficial for both Qdos and our clients. Nigel specialises in employment status and has personally represented hundreds of clients who have been subject to a HMRC IR35/employment status enquiry.

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