Part and parcel

Unpacking the status test of part and parcel, all about integration and how to avoid it

What is the part and parcel test?

To determine a contractor’s IR35 status, HMRC will employ several tests, one of which is known as ‘part and parcel’. This is where HMRC will look to see if a contractor has become so integrated into the client’s own organisation, one could argue the contractor is indeed ‘part and parcel’ and perhaps plays an integral part in the client’s own business.

What's the test looking out for?

The ‘part and parcel’, or ‘integration’ employment status test asks whether the worker is integral to the end client’s business or merely an accessory to it.  A genuinely self-employed person should only be an accessory to their client’s business, carrying on a business outside and separate from their clients’ organisation.

Accountant standing in office

Indicators of an employee

An employee will be integrated into the business of their employer where they are provided with things such as:

  • their own desk
  • a designated computer terminal at which to work
  • their own stationery
  • access to normal employee facilities
  • have unrestricted access to the employer’s premises
  • be allowed to join company pension schemes and receive invitations to paid staff functions such as Christmas parties.
Professional working at desk

Indicators of an independent contractor

  1. Ensure that you do not make decisions regarding the client’s own staff. This can involve line management and performing staff appraisals, or making decisions on the hiring and firing. A client may ask for advice, but ultimately it is the client’s decision on their own staff.
  2. Appearing in the client’s own telephone directory, organisation chart, their website or even using their email address can all be signs of you being deemed as ‘part and parcel’ of the client’s business (if you must use the client’s email address for security reasons, the word ‘contractor’ or your own business name should be used in the signature).
  3. Using business cards with both your name and client’s business name, as well as using an employee security badge should also be avoided. You should, instead, get a contractor badge (or lanyard with your own business name on) and sign in each day instead.
  4. Contractors don't usually accept employee benefits or perks. This can include eating in a subsidised canteen or even using the client’s subsidised gym. If you do use these facilities, you should pay visitors prices.
  5. Avoid wearing the client’s company uniform or company badge/logo where possible, as well as ensuring you are not provided with a designated work station.
  6. Pay for all your own training, and if you must attend training while on the client’s premises, you should not charge for your time.
  7. Avoid direct involvement with the client’s own customers, if you must be involved with them, make sure it’s clear to them that you are not an employee of your client.

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Part and parcel alone won't be enough to prove your status

Some of these points mentioned above are not enough to put you inside of IR35 on their own.  If you are subject to an IR35 enquiry, HMRC will consider all of the evidence to build up a complete picture of your working practices. Whilst things such as making decisions regarding the client’s staff can alone be a strong point leading to employment and having an integral role in the business, others such as using an employee security badge would not be enough alone to give the same indication.

Some contractors tend to believe that a lengthy contract period is enough to put you inside of IR35; this is not true. However, the longer you stay with the same client, the easier it becomes for you to, out of habit, become part and parcel of the organisation. The client begins to stop seeing you as a temporary fixture, but as an integral part of their business, expecting you to be there and rely on you being there. That is often when contractors find each of the points mentioned above start to creep in, and before you realise it, you have become part and parcel, and you have started to look like an employee.

So, while little things such as not eating subsidised foods and not having your own designated work station may seem insignificant, they help to remind you and your client that you are not part of their organisation and you are indeed an independent contractor in business on your own account.

Part and parcel in practice: A case study

In the first-tier Tax Tribunal case of Slush Puppie Ltd v HMRC (2012), Mr Sandford was engaged by Slush Puppie Ltd (SPL) as a self-employed engineer.

All SPL service suppliers were provided with a uniform which included the SPL logo. It was particularly important for engineers to wear the uniform when visiting customers such as schools where personal ID was important to the customer; for similar reasons, all service suppliers carried an SPL business card.

SPL provided Mr Sandford, as well as other service providers, with a mobile phone for work purposes and requested that this be kept switched on at all times so that contact could be made whenever necessary. By retaining ownership and control of the phone SPL sought to protect their customer base.

Mr Sandford did attend the service meetings organised by SPL, but was not strictly obliged to do so. The tribunal concluded that attending service meetings or working in close co-operation with SPL did not demonstrate that Sandford was an integral part of SPL’s business in the way that employees were, stating;

"it is true that the outward appearances of Mr Sandford’s business made it seem to SPL’s customers as though they were dealing with SPL itself... That SPL held Mr Sandford out as one of theirs was the important thing for customer 25 confidence but it is not decisive of Mr Sandford’s status."

The outward appearances of Mr Sandford’s business made it appear to SPL customers as though they were dealing with SPL itself. Mr Sandford’s wearing of a uniform, using business stationery showing SPL’s mobile phone number and an SPL e-mail address, combined to reassure customers that Mr Sandford was ‘an SPL man and that SPL vouched for him’ were all important to SPL so as to instil customer confidence, but was not decisive of Mr Sandford’s employment status.

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