How to avoid being caught out by the new Off-Payroll legislation

Dave Chaplin, CEO and founder of ContractorCalculator and IR35 Shield, shares his top ten IR35 tips to manage IR35 status

It is just a matter of weeks until the new Off-Payroll legislation comes into effect in the private sector. On April 6^th, medium and large-sized firms will become responsible for determining a freelancer or contractor’s employment status for tax purposes, or “IR35 status”, and then tax the contractor’s rate as employment income if applicable. Under the new rules, contractors themselves are not responsible for assessing their own status and cannot be held liable, but for those contractors who want to continue working ‘outside IR35’ it is crucial that they don’t fall into easily avoidable traps.

1. Don’t let your client dictate your work

To remain “outside IR35” you need to avoid any suggestion that your client heavily controls you as this is a key determinant of ‘deemed employment’. Only carry out the job you originally agreed with your client and never let your client move you to work on something outside of the services you had agreed to do. And don’t get instructed on how to complete your work either.

2. Your client should accept a substitute

A contractual unfettered right to provide a client with a suitably qualified substitute is a pointer that you are not providing personal service and therefore a pointer to being ‘outside IR35’. An engagement should be between the client or agency and your company, not you, personally. You can be named in the contract as being one of the personnel who will provide the services, but not the only one.

3. You should agree a scope of services

Agreeing to take on any work that the client offers, and not by mutual agreement within the scope of the contracted services suggests that your client not only controls you, but that they are also obliged to offer you ongoing work for which you are obliged to accept.  This is called ‘mutuality of obligation’, or ‘MOO’ and is an indicator to being in an employment type relationship. Genuine contractors only work on what they agreed to do and only get paid for work done.

Be sure to define and agree the scope and don’t include a minimum number of hours you must be provided with work for each week. Employees have ‘core hours’. Genuine contractors do what is required and have discretion on how and when they work those hours and get paid for the work done.

4. You should not bear the hallmarks of an employee

Whilst it is sometimes necessary to be branded by the client’s identity, and security or logistical reasons dictate that you have a client network log-in and email account, these should be avoided if possible as they can suggest you are part and parcel of the client’s business and potentially a deemed employee. Having your own business cards and own website all helps to indicate that you are a genuine contractor and in business on your own account.

5. Do not have an appraisal

If you accept an appraisal by a client then it is another indication that you are in a relationship that is one akin to employment. Employees have appraisals. You wouldn’t appraise a workman in your home so why would you be getting one?

6. Do not ask permission for time off and never get paid holiday and sick pay

Informing a client ahead of time that you are not going to be available is a professional courtesy so that your client is not inconvenienced and can plan for your absence. However, you should never ask permission to take holidays or time off sick and you should never accept payment for time off. Employees get these benefits. Genuine contractors do not.

7. Avoid a contract with a former employer soon after leaving work

Contracting for a former employer immediately after leaving your job as an employee means that you could be considered as ‘inside IR35’ by HMRC.  Ask yourself if it really is a genuine business to business relationship?

8. Do not allow prohibitions from working with other clients

If your client insists that you cannot work for other clients at the same time, this implies a level of control and can be a pointer to potentially being ‘inside IR35’. These types of clauses should not be in business-to-business contracts. The only exception might be a restrictive covenant, so you cannot work for any of your client’s competitors for a given time.

9. Always pay for your own training

If you permit your client to pay for your training and personal development, this can be a strong pointer to being in an employment type relationship. Your own limited company should be paying for all your training and professional development.

10. Be proactive

Do not sit on your hands. There are many clients who will take a risk averse approach and ban the use of limited company-based contractors, even if it negatively affects their ability to attract talent or increases their cost base. If that presents a threat to you, then you might consider pre-empting the situation and acting sooner rather than later.

If you are in a contract that overlaps the April 2021 transition period, then the first step is to understand your current IR35 status. Then talk to your client and see what their plans are moving forward. You can assess your status by visiting IR35 Shield.