In an ideal world, the contract would hold the power in its hardy ink. The written contract is important in determining IR35, HMRC will request copies of them in an investigation with proof of why you consider it to be outside the legislation, but it is too often not enough to satisfy the hungry tax man.
Your working practices refer to your day-to-day working relationship with your end client, how you truly operate on the job, and the reality of your agreement. If you are unfortunate enough to be subject to an IR35 investigation, it is these practices which will demand the most attention from the Revenue.
HMRC will look to determine that you are operating in a business to business relationship, and are not treated like an employee of your end client. There are a number of different factors in which HMRC will look at to decide this, including some which exist in the written contract such as your right to provide a substitute or the level of control your client has over your work. Others may include whether you receive any benefits such as access to a subsidised canteen or not, whether or not you are on any internal employee lists or whether you provide your own equipment and training.
Your contract and your working practices will be looked at as a whole to ultimately determine your status but any discrepancies will look to the working practices for the truth. Sometimes HMRC will even get in contact with your end client directly in seek of your real working arrangements. This can often arise problems for the contractor, not because they have been lying, but because HMRC may not speak to the correct person. Perhaps they speak to somebody in Human Resources who has not dealt with you on a regular basis or doesn’t truly understand how contractors operate and so answers their questions incorrectly.
With so much weight put onto your working practices, it is a shame then that they are so difficult to prove. Unlike your written contract, there is no hardy proof of your working practices, only what we call a ‘hypothetical contract’. It is important for you to ascertain this hypothetical contract with your end client prior to an investigation opening to ensure a mutual understanding. A Confirmation of Arrangements form may also be worthwhile having signed by your end client. This is a written confirmation of your working practices which is not legally binding but may assist in proving your case in the event of an enquiry.
The perfect case scenario is to have a robust written contract with all of the important clauses included and these terms mirrored in reality with your end client in agreement. Without a clear list of rules to follow for the legislation, this can be difficult.
Qdos Contractor have been offering review services for over a decade, helping contractors prove their genuine status to the Revenue. Along with an assessment of your written contract, we can also complete a review of your working practices, offering an overall assessment of your status. We have also been successfully defending contractors in over 1300 IR35 investigations, so you can get the professional backing you need to win a case, which has led to the development of our popular insurance policies should you wish to take some precautions and safeguard your business.