Continually Minimise IR35 Risk
24th January 2010We can assist in this process, by reviewing your current contractual terms and working practices, to assess and minimise IR35 tax risk.
HMRC provide an online tool to assess your employment status:
The following badges of trade are some of the factors HM Revenue & Customs would use in assessing whether income from a particular contract is subject to the IR35/off-payroll working tax rules:
Badges of Trade
|
Indicative of Self-Employment(Contract for Service)(ie: IR35 does not apply) |
Indicative of Employment(Contract of Service)(ie: IR35 does apply) |
Control |
You have the right to decide how, when and where a job is done.
Leading test cases: ECR Consulting Ltd, Castle Construction (Chesterfield) Ltd, Ready Mixed Concrete. |
Close directional supervision by your client (master – servant relationship). Staff rules and regulations. Client can dismiss you.
Leading test cases: Autoclenz Ltd, Andrews, Stagecraft Ltd. |
Personal Services |
You have the substitution or delegation right to decide by whom a job is done (ie it is not a personal service). This must be more than just subcontracting the work out to another worker.
Leading test cases: ECR Consulting Ltd, Community Dental Centres Ltd, MBF Design Services Ltd, Express and Echo Publications Ltd, Usetech Ltd, Stuart Delivery, Northern Lights Solutions Ltd. |
Single named worker only, or non matching contracts either side of agency, providing a personal service
Leading test case: Dragonfly Consultancy Ltd. |
Basis of remuneration |
Remunerated on a project basis, or at a fixed price. | Remunerated on a time basis. |
Provision of equipment |
You supply large or expensive equipment, and may work from a dedicated area of your own premises. | Provision of only small or no equipment. Work at client’s premises.
Leading test case: Hall v Lorimer |
Trading structure |
Trade with more than one client at a time, or work on short successive assignments with different clients.
Leading test case: MBF Design Services Ltd, Market Investigations Ltd. |
Long term assignments with the same client. Working for previous employer, within the public sector or as an officer of the client. |
Financial risk |
A loss can be suffered. All rejected work to be corrected at your own cost. Penalty clauses. The opportunity exists to make a larger profit from sound management.
Leading test case: J and C Windows. |
No financial exposure. All rejected work to be corrected at your client’s cost. |
Business organisation |
Own premises, letterheads, domain, website, training, other employees, insurance etc. Quoting for jobs in advance. Advertising | None. |
Terms of engagement |
Contracts and actual working practices which are consistent with beneficial badges of trade. If engaged through an agency, then both contracts must match. | Contracts which do not record the above beneficial badges of trade, no contracts at all, or actual work practises which differ from those recorded (sham).
Leading test case: Autoclenz Ltd. |
Employee rights |
None. | Typical employee benefits and statutory protection (eg paid holidays, sick pay, etc). |
Part and parcel of the organisation |
Appear and behave differently to employees. Re: staff parties, training days, e-mail address, canteen, parking space, etc.
Leading test cases: Novasoft Ltd,. |
Appear and behave the same as employees.
Leading test cases: Dragonfly Consultancy Ltd, Future Online Ltd. |
Mutuality of obligations and intentions |
No obligation to offer and accept work over a period of time.
Leading test cases: ECR Consulting Ltd, Larkstar Data Ltd. |
Mutual committment to offer and accept work over a period of time.
Leading test cases: Airfix Footwear Ltd, Synaptek Ltd. |
The overall picture of employment status, and hence your IR35 status, would ultimately be determined by a court of law based on the “balance of probabilities” test; and not based on the “beyond reasonable doubt” test which is the yardstick by which most Tax Inspectors wrongly arrive at an opinion. In deciding IR35 status, a tribunal would arrive at a decision on whether the worker is in business of their own account, based on the hypothetical contract between the client and the worker (ignoring the personal service company intermediary), after having ‘painted a picture from the accumulation of detail’ and comparing this with the terms and conditions if the worker had been directly employed. If a decisive conclusion is unclear, then the mutual intention of both parties will be the deciding factor. This is why the detail is important and this is an area where we can offer guidance, to minimise IR35 risk.
Disclaimer - All information in this post was correct at time of writing.
