Mythbuster Maze: The truths and the myths about IR35 – Part 1

 Separating the IR35 facts from the fiction 

Rumours and convincing know-hows are abound in the wealth of IR35 information, making it somewhat difficult to determine which advice should be taken as gospel and which should be disregarded as simple hearsay.

IR35 is a maze (you can thank Gordon Brown and the good people at the Inland Revenue for that) and at every decisive turn, there seems to be a couple of gremlins with different opinions on which way you should go. Qdos will help guide you through the labyrinth with their experience spanning back to when the legislation began back in 2000 and over 1,300 successful cases fought on behalf of UK contractors. Consider us the red (or rather blue and yellow) string for you to follow to the safe haven centre of the maze which was built around you when IR35 came into play, so you have a better chance of winning your case.

Left or right: how long is your contract? Many people believe that if your contract is long-term (over 2 years seems to be the general guideline offered up on most forums etc) then you will automatically be considered ‘inside IR35’*. This is a myth, often confused with the 24-month rule. Clearly, having a long-term contract gives the perception of employment, but providing there is an end date to the contract and you have the right to take on other contracts concurrently, there is no reason for this to put you in this category.

Straight away, we reach another hurdle in that consistently renewing contracts also give the perception of disguised employment. Although true, providing neither party (that’s your company and the end client) has any obligation to provide or accept renewals of the contract, plus each renewal has a specified end date and is recorded in writing, there is no explanation for this disregarding you as a genuine contractor.

Next turn: do you have the right to provide a substitute? The various intricacies of this important factor in determining employment status have been debated to the world’s end, so we will keep it brief but you can find out in more detail about this point here should you wish.
First off, YES you should be able to provide a substitute. It is your company taking on the contract, not you as a person, so your company should be able to provide a different person to undertake the work.
Secondly, YES it should be a true right and not just a weightless line in your contract with no real meaning. If your client doesn’t agree with the clause, then it doesn’t mean a whole lot. Get confirmation.
Thirdly, NO you do not need to battle with substituting for one day for the sole purpose of proving that you can (though it would be something of a winning hand in the event of an enquiry). I will delve a little deeper into this point by saying that many contractors are specialist, and as such, don’t necessarily have someone at their fingertips with the relevant skills and experience required to do their job. Most contractors will never have needed to substitute neither and so will not have this golden ticket to being considered ‘outside IR35’ for no fault other than always being able to do their work themselves. This is what we call an ‘arguable point’. Meaning, that we would argue with HMRC that the right exists and is a true one (with the assistance of a clause in the contract and preferably confirmation from the end client) but the need to exercise such right has never arisen nor does the contractor have a suitable candidate to take on the job. However, in the hypothetical situation that they did require to send a substitute and they had a suitable candidate, the end client wouldn’t refuse them and the original contractor’s company would still be responsible for and the paying of the substitute and any work they carry out.

You’ve got through a hard bit but now there are too many paths to choose: do you have control over your work? The level of control (which already has three parts; when, where and how) which is acceptable for an end client to have over you is an endless array of ifs and whens. I’m afraid to say that there is no straight answer either: it is another ‘arguable point’. Some may say that if you have to work 9-5 at your client’s site then you are likely to be considered a disguised employee as this is what would be expected of a permanent employee. However, if your contract has certain security implications, for example, which ascertain working certain hours at the client’s site with their equipment etc, then it can be argued that this is not an indication of employment as it is due to the nature of the contract.
The important part when looking at the level of control is the ‘how’ part. As an expert that has been brought in to complete a task, you should be your own boss and have control over your method of work. The classic example of a plumber can be used here; if you call out a plumber to fix your leaky sink, you don’t tell them how to do it. Reporting to a liaison is fine, they’re likely going to want to know your progress, but ensure that you do not slip into a line manager vs employee style relationship.

 

I think that’s enough for you to sink your teeth into so let’s set up camp here and continue next month with more truths and myths about the IR35 legislation. If you have any queries or IR35 myths that you would like busted, please comment below and we will make sure they get addressed.

*When determining IR35 status, it is common to be referred to as either inside or outside the legislation. Being inside means that you may need to pay a deemed salary whereas being outside means that you are working in a manner which is compliant with the legislation. In short, it is financially preferable to be outside the legislation but neither are bad (we will address this in more detail later on).

 

By:Sam Greenwell

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