IR35 What you need to know and do

27 Dec 2017 By Views : 1559

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IR35: What you need to know and do.
Arguably, the most contentious issue of 2017 was the application of IR35; the income tax and NIC payment legislation which has been around for 18 years, but has only now manifested as a migraine for many healthcare workers. From 1st April this year, the onus is on the client to prove or disprove IR35 liability, which has resulted in the panic reactions of NHS organisations ranging from (incorrect) blanket application of IR35, only offering contracts that fall in/out of IR35, to withdrawing contracts entirely.
Anyone falling inside IR35 for work undertaken through their limited company or any other umbrella company, is liable for tax and NIC payments, together with penalties; not forgetting the interest.
Since HMRC can investigate a worker for IR35 compliance over the previous 6 years, this is not a pain that can be ignored; nor is it likely to go away. Undoubtedly, IR35 legislation is complex and legal advice is highly recommended for anyone who is uncertain about their status. Expect to pay upwards of £100/hr for a suitably qualified solicitor - anything less than that may well be indicative of lack of expertise.
So how exactly can you determine whether your work falls within IR35 or outside it?
Interestingly, the HMRC’s own IR35 calculator is infamous for being flawed and has caused much uproar – some of which has gone all the way to the courts (due to a lack of an appeals process for HMRCs IR35 liability decisions). However, this has not stopped NHS organisations from staunchly declaring that the only outcome they recognise is the one generated by the faulty algorithm.
All is not lost, however, as the questions can be completed anonymously and an explanation of why the work is/is not within the bounds of IR35 is provided at the end.
In the meantime, all contractors are advised to keep evidence to prove the following:
Role description
Is the role advertising for a contractor or an employee? HMRC will look to see if a previous employee has left that role and now it is being ‘contracted out’. You will need to show that you do not have any office-holder duties.
Historical HMRC outcomes
If the organisation has already been investigated for IR35 compliance and workers were found to fall inside it and they subsequently left, the organisation may have advertised the vacant roles without specifying that they are caught in IR35. Be careful and ask the right questions to determine whether this is the case and ensure your contract is watertight.
Contract wording
If, as a contractor, you are expected to draft the contract yourself, then expect to require legal help. The wording in it may be enough to satisfy the client (who doesn’t suffer the consequences of the IR35 failure), but tax inspectors will very likely call you out on anything that can put you inside the IR35.
Working requirements
The very nature of contract work is that the contractor determines how and when they will deliver services, in a way that is acceptable for the client. Specific timings, number of hours or days and any references to the client exercising control over the contractor, all bear the hallmark of the contractor being a ‘disguised employee.’ Make sure that your contract has none of these.
Personal services
A contractor does not provide a ‘personal service’, meaning that they can (and do) send someone else (suitably qualified) to perform the tasks that they were contracted to do. This means that if you send a substitute to do your shift, the personal responsible for billing the organisation is you and the payment for the substitute is also your job. When demonstrated to have taken place, substitution is a good way to prove non-IR35 liability.
Mutuality of obligation
If your contract explicitly states your weekly hours and hourly rate, together with the term of the contract, then you are essentially classed as an employee. If it also prohibits you from working elsewhere and contains clauses in relation to additional duties, then it will certainly fail the IR35 test.
Financial remuneration
The stark difference between the contracts of an employer and a contractor is that one is for the guarantee of regular fixed wages or a salary, whilst the other is an agreement to pay the professional fees for doing task(s). Ensure that you invoice the client when the job is complete and bear in mind that regular amounts of payment could frame you as within IR35.
Some industries have worthy reasons why a contractor must use the organisation’s equipment (size, cost etc.). However, if a contract has a clause enabling to you use your own tools and if you can demonstrate that you do, then it is something that will work in your favour.
When your name becomes known within the organisation for being the person in charge of x, responsible for y and volunteered for z, you are acting like an employee. Avoid your name and contact details being listed, or having additional roles or responsibilities being delegated to you that are not part of the contracted job.
Whilst not guaranteed to pass the IR35 test, a contract which clearly states that the relationship between the organisation and the worker is one of supplier and customer, not employee and employer, will stand you in much better stead than one that does not have this clause.
For further information, please refer to:
If you would like to discuss any IR35 queries with the HMRC, you can do so here.
More comprehensive IR35 information from HMRC is also available.
Following on from April’s blanket imposition of IR35, NHS Improvement released this update.

DISCLAIMER: The information on this blog is for News Reporting and Educational Purposes Only.