Bite Size IR35: Is it Risky Business?

Permanent employees tend to be fairly risk free when they work unless their work is naturally dangerous, as their employers have insurance for any failures and make any purchases required to run the business. Their employer takes care of everything from insurance to staff training so employees can just turn up to work and do their jobs.

Contractors however, in business on their own account, are expected to take care of all these things themselves for the running of their own business. This IR35 status test argues that a genuine business owner must be taking a financial risk to operate.

There are a number of different attributes that HMRC may look at to determine whether you are taking a financial risk, such as whether you provide your own equipment and training. Employees would have this provided for them but a contractor should be arranging for these business essentials themselves.
The Revenue may also look at whether you would be liable to indemnify clients against losses or damages caused by your negligence and that you would be liable to rectify any mistakes at your own cost. Holding Professional Indemnity insurance is one way in which to show this and HMRC will also be looking at whether you purchase your own business insurance or not.

The basis of this test is that you are acting as a genuine business and thus have all the usual aspects of one. Therefore everything down to your marketing efforts, VAT registration and licences contribute to this test.


By:Jane Hailstone

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