CUSTOMER NOTICE
Please note that our team are partially working from home to help prevent the spread of coronavirus. In the event you experience any difficulties in contacting Qdos via telephone, please email [email protected] and a member of the team will return your call as soon as possible. Until further notice, our contact hours are reduced to 8:30-18:00 Monday-Friday. We apologise for any inconvenience caused. Click here to find out more.

Please note that office will be temporarily closed from 4pm Friday 5th March 2021 until 8:30am Monday 8th March 2021.We apologise for any inconvenience caused.

Feefo Gold Merchant

IR35 Advice Centre

 

IR35 Compliance Guide

IR35 Compliance Guide
Scroll
 
Contact Qdos Contractor:0116 269 0999
 
 

IR35 Guidance

 

IR35 Compliance for Contractors

Despite changes to the administration of IR35 from April 2021, the way in which it is determined remains the same.

Below we explain the main status tests that need to be considered to assess IR35, how to comply with the legislation and why. (Please note that this is only a brief guide; it is not intended to be a comprehensive analysis of employment status).

If you have any queries regarding IR35 or the below IR35 compliance guide, please do not hesitate to contact our consultancy department on 0116 2690 992 or [email protected]

 

Who is responsible for IR35 compliance?

 

The party responsible for IR35 compliance depends on when and with who you are contracting. Since 2000 when the legislation was introduced, it has been the sole responsibility of the contractor, but this is changing.

The responsibility for IR35 lies with the contractor if:

  • you are providing services to a client in the private sector before 6th April 2021
  • you are providing services to a client in the private sector which is classed as a small company under the Companies Act 2006 from 6th April 2021

The responsibility for IR35 lies with the end client/fee-payer if:

  • you are providing services to a client in the public sector
  • you are providing services to a client in the private sector which is classed as a medium or large company under the Companies Act 2006 from 6th April 2021

The off-payroll rules introduced in the public sector in 2017 and to be introduced to the private sector from 2021, mean that it will be the end client’s responsibility to determine IR35 status. It will also be the fee-payer's responsibility to deduct the relevant tax and National Insurance from source.

Every member of the contractual chain inbetween is responsible for ensuring they contribute to the compliance of an engagement by passing the status determination statement along the chain.

Read more about IR35 changes in the private sector.

IR35 Status

 

The key factors which determine your IR35 status

 

It is important to note that each working arrangement is reviewed on its own merits and all of the positive and negative elements of both the written contract and working practices will be weighed up in line with case law in order to provide a balanced opinion.​

When considering overall IR35 compliance for the entire engagement, it truly is a mixture of different factors, not simply the written terms. You should ensure that any contract proven to be outside of IR35 also matches the working practices of that engagement. So, if the contract says you are expected to provide your own equipment for the services, you should make sure that you are not using any client equipment during the provision of the services. This is because when determining IR35 status, the working practices are seen to hold more weight or are also referred to as the reality of the engagement.

What are the IR35 tests?

 
  • Office Holders

  • Right of Substitution/Personal Service

  • Control

  • Mutuality of Obligation (MOO)

  • Financial Risk

  • Right of Dismissal

  • Part and Parcel of the Organisation

  • Exclusive Services

  • Intention of the Two Parties

Scroll
 

 

 

hero_peopleattable

How can contractors best protect themselves from IR35?

3 simple first steps contractors should take in order to protect themselves from IR35.

The Intermediaries Legislation, more commonly known as IR35, was implemented in as part of the Finance Act in 2000 in order to target perceived ‘disguised employment’. Disguised employment refers to the act of using a limited company as a mechanism for paying less tax. A clear and often referenced example of disguised employment is of a person leaving their PAYE employment on any given Friday and returning to the same role on the following Monday as a contractor. HMRC saw an increasing number of people working under this guise and, therefore, introduced the IR35 legislation in order to combat this perceived tax avoidance and ensure that contractors who were acting as ‘disguised employees’ paid the correct amount of tax.

Ensuring you and your business are protected from IR35 is by no means a walk in the park, however, there are a few options at your disposal to help the process run smoothly. Let’s take a look at the simplest ways to ensure compliance with the infamously tricky legislation.

 

HMRC’s enquiry process

During an IR35 enquiry, your contract will be HMRC’s first point of call. They will look at the contractual documentation between the parties and assess whether the contract is, in their view, IR35 compliant.

After reviewing the contract, HMRC will want to delve a little deeper into the actual working arrangements. They will ask the contractor a number of questions as to how they work on a day-to-day basis. It is then likely that they will want to speak to the end client with regards to these working practices to confirm their view of the day-to-day working practices.

They will touch upon any parts that allude to IR35 status tests such as personal service/substitution, control, mutuality of obligation. They will want to get to the bottom of how you, the contractor, work day-to-day and whether it is truly reflective of genuine self-employment. Whilst the contract may be IR35 compliant, if the client's comments around the working practices are contradictory to the terms of the contract, HMRC will tend to favour the clients view of the working arrangements.

 

Contract reviews

When assessing the contractual terms of an engagement, HMRC will look at all the key IR35 status tests as set out in the case of Ready Mixed Concrete v the Minister of Pensions (1968). For a closer look at these all-important status tests and how they are viewed through the eyes of an IR35 assessor, take a look at our IR35 Compliance Guide.

HMRC will look to establish if these employment status tests are addressed within your contract and whether they point towards disguised employment or genuine self-employment.

Whilst there are other factors, such as the actual working practices, that will hold a much greater weight over any contractual terms, we would always advise your contracts are as strong as they can be from an IR35 perspective. As such, we recommend that you have your contract(s) reviewed by a company who specialises in this area of tax legislation.

 

Working practice reviews

Whilst having a contract review is important from an IR35 perspective, when looking to understand your IR35 status, HMRC will place a much greater emphasis on the actual day-to-day working arrangements.

It is important to note that contracts are often generic and sent out in bulk to many contractors all working for different end clients. Therefore, your working practices will not always mirror the written terms. Because of this, it is crucial that your working practices are assessed. We need to make sure that both your contractual terms and your working practices reflect those of a genuinely self-employed contractor.

While it is important that your working practices reflect your contractual terms, ultimately the working practices of any engagement will hold more weight in the event that HMRC carries out an IR35 investigation. As such, you should always seek to have your working practices assessed by an independent third-party expert.

 

IR35 insurance

The importance of having adequate IR35 insurance in place should not be underestimated. Remember that IR35 enquiries can be lengthy, stressful and costly. Without the guidance of an expert in this specialist area of tax legislation, they can also be extremely difficult to defend.

With our Tax Liability Cover (TLC35), you get the safety net of a comprehensive IR35 insurance policy specifically designed to protect you in the event that HMRC opens an enquiry into your accounts. Different kinds of IR35 insurance offer you differing levels of protection. Our TLC policy covers a broad range of enquiries, including IR35 enquiries, PAYE disputes, and VAT disputes. With claims handled by ex-revenue inspectors, TLC offers coverage for any tax/NIC liabilities, interest, and penalties should you be found ‘caught’ by the IR35 legislation. An additional perk of our TLC policy you can look forward to is the inclusion of unlimited IR35 assessments.

 

Here at Qdos we offer all of the aforementioned services. From contract and working practices reviews to IR35/Tax investigation cover, all are available on our website and can be found through the IR35 Advice Centre. If you require any further information or guidance, a team of dedicated experts are on hand to assist you with all of your IR35 needs. Feel free to contact us so we can get the ball rolling.

By:Sophie Withers
 
 

IR35 Guidance

 

How to comply with the IR35 legislation

When it comes to complying with the IR35 legislation, you should consider the following steps:

  1. Review each engagement for IR35 status. This includes assessing both the written terms but also your working practices (the reality of the engagement) against the key factors above.
  2. Check that your working practices mirror what is detailed within your contract. The reality of the engagement holds more weight than the written terms so it is important to ensure your contract is a true reflection of the engagement.
  3. Keep a record of your due diligence. This could include copies of third-party contract reviews, a Confirmation of Arrangements and/or relevant correspondence which may help evidence your position.
  4. Pay the relevant tax and national insurance for your status. Being compliant with IR35 is often confused with being 'outside IR35', but compliance really just means paying the correct tax for your employment status. So if you are operating 'inside IR35' for an engagement, then you will need to make a deemed payment and consider the expenses you are able to claim when inside IR35.
  5. Maintain up-to-date assessments of your engagements - ensuring reassessments throughout the engagement or if there are any material changes
  6. Keep an eye on ​relevant news for any changes or updates to how status is determined

While the IR35 reform will mean that in most cases it will no longer be the contractor’s responsibility to determine their IR35 status, contractors should still be focusing on ensuring compliance within their engagements.

It is important to remember that the reform will not apply to any engagements with companies classed as small as per the Companies Act 2006 and contractors are still liable for any services provided prior to April 2021. See above for more information on who is responsible for IR35 compliance.

 

IR35 compliant contracts

 

An IR35 enquiry from HMRC will always begin with a request for copies of your written contracts relating to the accounting period in question, with proof of why you consider it to be outside of IR35. A robust contract may stop a full-blown investigation in its tracks, so it is essential to ensure compliance in this respect. A variety of status tests, outlined in this guide, are used to assess your contract, with no single test putting you inside or outside the legislation. Both the contract and working practices will require assessment as a whole using all of the status tests to determine your employment status.

​The contract does not need to be in writing - an oral or implied contract is legally binding if the parties intend it. The terms of the contract can be collected from the circumstances surrounding the engagement.

​It is not only your contract with a recruitment agency which may be assessed; in Usetech Ltd v Young the High Court decision made it clear that the "upper level" contract between the agency and the end client was to be considered in deciding the status of the worker, notwithstanding the terms of the agency's contract with the worker's Personal Service Company. Most contractors, however, will never see the upper level contract or have any rights to.

​HMRC will look to see if you have taken ‘reasonable steps’ to ascertain your status and so it is imperative to have each contract reviewed in order to display this. View our contract review services here.

Having your contract reviewed by an independent third-party expert, will give you a better idea of where your engagement sits in regard to IR35 status. While such a review gives you the IR35 status of that contract, however, in order to find out the overall IR35 status of the engagement you will also need to undertake a review of the working practices of that engagement.

Working Practices

 

The working practices of an engagement is how those services are provided in reality.

The written contract between the contractor and the end client could be perfect in terms of IR35, demonstrating key areas such as substitution, control, non-exclusivity and mutuality of obligation but this will also need to be proven in practice. Although the written contract remains important in determining status, should you be unfortunate enough to be subject to an IR35 enquiry, HMRC will look closely into your working relationship with your client.

​In an ideal world, we would like an IR35 friendly contract mirrored by the working relationship with the client.

If you are subject to a status enquiry by HM Revenue & Customs, the Status Inspector will normally want to obtain information from both you and the end client about the practical working arrangements of each engagement. This is known as constructing the "hypothetical contract" between the worker and the client. It is vital therefore that there is a clear understanding between you and the client about the nature of your day-to-day working relationship. This will also apply to situations where there is no written contract.

​We offer services for assessing your working practices, including a Working Practices Assessment and a free Confirmation of Arrangements document which can both be assessed by our consultancy team.

 

Why is IR35 compliance important?

 

Non-compliance with IR35 could leave you with not only the weighty cost of defending yourself against an enquiry from HMRC but also the potential burden of being saddled with the cost of any unpaid taxes should you be caught by the legislation.

Anyone can be investigated by HMRC, and should you be found to be inside IR35 but have paid tax as an outside IR35 contractor, you will be required to pay back the tax, interest and potential penalties as a result.

You should also bear in mind that an enquiry from HMRC is by no means a walk in the park, not only can these proceedings be extremely stress-inducing but they also have the potential to go on for a long time. The cost of defending yourself from an IR35 enquiry can very swiftly mount up if you don't have an insurance policy.

It is unclear at this stage what compliance will look like after April 2021. Therefore it is important to ensure IR35 compliance remains top on your list of priorities.

 

Top 10 Tips for IR35 compliance

 

1. Have your engagements assessed for their IR35 status, by doing so you can evidence compliance with the legislation should your engagements ever come into question from HMRC. By opting for a mixed approach of both a contract and working practices review, you will have a clear picture of the reality of your engagement in terms of IR35 status.

2. Educate yourself about what IR35 might mean for your engagements and keep up to date with the legislation. By using the wealth of online articles available to you, you stand a better chance of ensuring compliance in the way you provide your services by simply knowing what could be classed as inside or outside of IR35.

3. Ensure communication within your contractual chain. By doing so, each party will know what they are accountable for. By keeping track of each other and the determination process it will be easier to make any necessary changes to better IR35 status.

4. Take care when checking that your working practices accurately reflect the written contract you have signed. Not only should you be actively monitoring the way you provide the services to ensure you are acting in a way that is compliant with the terms of your contract, but you should also be collecting evidence to prove this is the case.

5. Make sure you are providing services in a manner that is consistent with working outside of IR35 or pay the relevant taxes if not.

6. Collect evidence to show you are treated differently to your client’s employees. Examples of this would be a record of any relevant emails or other forms of contact with your client.

7. Look for contracts that are outside of IR35 at their very base level, in other words, project-based contracts rather than time-based contracts. Always have a good read of the contract before signing. Another example of this is that you should look to see that you are not individually named within the contract and are only referred to as a business.

8. Seek to attain a Confirmation of Arrangements. Having a CoA signed by your end client greatly increases your chances of successfully defending yourself from an IR35 enquiry. For more information on what a CoA is and how to attain one, see here.

9. Show you operate a genuine business and that you are not part in parcel of your end client’s company. Examples of this would be investing in stationery for your business, such as letterhead paper, or simply wearing an ID badge when attending your client’s site.

10. Have proof that you have taken financial risk on behalf of your business. Examples of financial risk would be holding relevant business insurances such as Professional Indemnity Insurance or Public Liability Insurance. Both of which we can provide for you here at Qdos.

Scroll
 

Tax & IR35 Cover

From £199.00 Tax Liability Cover (TLC35)

Full IR35 insurance, covering representation costs in dealing with HMRC plus additional tax, NIC, interest and penalties arising from an IR35 enquiry....

From £199.00 Tax Liability Cover (TLC35)
Learn more
Only £99.00 Tax Enquiry Insurance

Covers full representation costs in the event of a range of HMRC enquiries, including PAYE reviews, IR35, Section 660a. You can add Unlimited IR35 Co...

Only £99.00 Tax Enquiry Insurance
Learn more

Need Help?

 

Call our team on 0116 269 0999
Or arrange a call back

Call back
Chat with us