IR35 Update

Some updates for you all regarding IR35. The rather unpopular Business Entity Tests that were introduced by HMRC are to be scrapped from 5 April 2015 onwards. Hooray! For those of you who didn’t know about the Business Entity Test please note that these were not appropriate and had been campaigned against by various groups representing contractors.

However, the IR35 risk still exists and is not to be ignored. The risk of being investigated remains and there are a few points that need to considered which will help you to stay on the right side of the rules. IR35 status is largely dependent on three factors, so it is important to make sure your contract (and conduct whilst undertaking the contract) contains the following.

  • An unfettered right of substitution. This means that the contractor is not contracted personally to do the work but could send a substitute in case of absence and shows that the relationship is not typically one of employment. The ‘unfettered’ aspect is important here – ideally you shouldn’t need to ask permission from the client before sending the substitute. We here at Banner & Associates recommend that you in fact inact your substitution clause if feasible.
  • Direction, supervision and control. A genuine contractor should decide how to get the work done, not the client, so autonomy and independence in the relationship is vital.
  • There should be no Mutuality of Obligation (MOO) in the relationship. The contractor is under no obligation to do work outside of what is stated in the contract, unlike a traditional employee and the client is not obliged to provide additional work.

The three factors above should be followed either in their entirety or at least one of them should be included in the contract. Remember there is more than the contract itself which might be considered by HMRC. They look at the entire relationship and as such there are other behavioural traits which we recommend to clients to exhibit to ensure you are not caught out by the legislation. For instance, where and when possible use your own equipment. Do not attend team meetings, remember you are not an employee and should not behave like one. Do not use client in-house client travel agencies.

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