In the event an individual works exclusively for one client, there is likely to be a presumption that they are an employee of this particular organisation. Typically, a self-employed individual will provide their services to more than just one client.
However, HMRC do not see this as paramount in determining whether an individual is self-employed, as their stance seems to be that the majority of employed individuals are also not confined to working for one employer. Contractors should have a right to take on supplementary clients on a concurrent basis.
If a contract plainly states that the supplier is not able to provide their services to other clients, it is likely to be damaging from an IR35 perspective, and can be an indication that the individual is employed. It is acceptable, however, for clauses to be included that restrain the contractor from working with the client’s direct competitors, or if any other conflict of interests is created.
In Tax Bulletin 28, HMRC do agree that ‘long periods working for one [client] may be typical of employment, but are not conclusive’. The article then goes on to say that ‘regular working for the same [client] may indicate that there is a single and continuing contract of employment’ [Nethermore (St Neots) Ltd v Gardiner (1984)].
HMRC would probably look to argue that working for one client for a compelling length of time makes it more likely that there exists a contract of service (employment) and the shorter the engagement, the less likely it is that there is an employment relationship between the parties. This is not solely down to the length of the contract itself, but because of other aspects which are more likely to illustrate this to be the case.
HMRC’s proposition here is that the lengthier the engagement, the more likely that the engager will want to, or need to, exercise high levels of control over the worker, a significant indication towards a contract of employment. The contractor may also become integrated into the engager’s organisation in a way that is indicative of employment, and the approach to the services that are being delivered may also be less business-like.
Whilst the length of an engagement is not going to be the overall determining factor of a contractor’s IR35 status, it is definitely something that would influence their overall position. Contractors who are on long term engagements should be wary of the way in which they operate on a day-to-day basis. Often, over time, contractors who have been contracting to one particular client for quite a few years can begin to lose focus of their IR35 position and without realising, begin to integrate into the end client’s organisation.
As a contractor, regardless of whether you have been with a client for a period of six months or 2 years, you must ensure that you are always operating at arm’s length with the client to the extent that if somebody from the outside were to look in to the client company, it would be clear that you are an independent contractor. Additionally, you must not gradually begin to submit to the control of the client and neither should you begin to accept instructions and directions in the same way as an employee would.
It may be worth putting in place a ‘Confirmation of Arrangements’ document with your client which explicitly states the true working arrangements between your company and the engager as this can be a useful tool in the event of an IR35 enquiry. If you are on a long-term engagement with a particular engager, you can arrange for the client to sign this document for you on an annual basis or even every 6 months. This would demonstrate that both contractor and engager are on the same page with regards to the way in which the contractor is working, regardless of whether the engagement is for 6 months or 5 years.
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