As it stands, employers in the public sector are responsible for determining the IR35 status of their contractors, and this is set to extend to the private sector in 2020. As a contractor, it is vital that you pay attention to these new rules, as otherwise, it could prove to be very costly, both in terms of your earnings and the tax you pay. As a contractor, it is not completely in the hands of the client to decide your status, you can take some of your own steps to retain your outside IR35 status.
You may have heard about signing confirmation of arrangement letters with the client or taking repeated long form third party surveys, or HMRC’s CEST tool, which is much more complex. IR35-specific insurances are also becoming popular. Although these actions will describe and endorse the relationship as being outside IR35, it doesn’t guarantee that you won’t lose control of your actual working arrangements. HMRC are unlikely to drop an investigation based on letters of agreement, they will dig a lot deeper to ensure the relationships is as it appears to be. These are some ways you can retain your outside IR35 status.
Are You Substitutable?
One of the most effective ways of defending any inside IR35 claims is to include a clause which states you can be substituted. This is quite a simple step but one of the best ways to defend any challenges.
As a contractor, you are providing a service, therefore, you should be substitutable. This means that if you are unable to fulfil your work requirements for any reason, you should be able to provide another contractor in your place. For this to be valid, the client must agree to this and sign a contract to reflect it and diminish the right to vet the contractor. The client would not pay the substitute, they would pay you and you will pay the contractor. This needs to be very clear in the contract. If you are not substitutable, it could be argued that you are an employee of the company, as they are hiring you and not your service.
Be Aware of the Blurred Lines
As a contractor, if you are based within an office, it is highly likely that the lines will become blurred at times. You may be invited to a team lunch funded by the client or a request to replace an absent member of staff. These are situations where it feels ‘polite’ to say yes, but this can in fact, influence your IR35 status. If HMRC find out you have been attending work related events or taking over duties outside your contract, they may consider that you are now imbedded into the team, therefore, inside IR35.
It can be difficult to handle this situation without coming across as rude or having to announce your IR35 status as a way of getting out of the situation. Plan your reaction to these situations so you can maintain your IR35 status, while still maintaining good relations with your colleagues. If you are asked to replace an employee, for instance, you might want to respond by saying “I don’t think I have the expertise for that” or if you are invited to an event, you might want to say you are tied up with deadlines. If you get your responses in check, it’ll make it easier to handle these challenging situations.
Behave Like a Supplier
As a contractor, you are not a decision maker in the organisation, so don’t act like one. You can advise and recommend, but you shouldn’t be making decisions. Perhaps, another way to see your role is to try and try hard.. but not be attached to the outcome. The decision rests with the client organisation. You need to constantly remind yourself that you are a supplier, you are external to the business but there to support them. Another recommendation is to amend your signature to indicate your contactor status. Putting a (contractor) or (independent) at the end may cause clients to object on the grounds that you are sending confusing messages to their stakeholders.. So, perhaps just slip in an (ext) at the end.
IR35 Substitution Survey
Substitution has been proven time and again in courts to be a very strong indicator of self-employment. At Mindful, we understand the reality and the dynamics between a client, the intermediary and the contractors in respect of this provision. We are running a survey to gather intelligence – as to whether what we think we know, is all-pervading. Whether you are a contractor, a recruitment agency or a client, we would be grateful if you could fill in our survey (closing June 10th 2019). We are exploring a fix to this perennial problem and your contribution will help. All entries with an email address are automatically entered into a draw for us to choose a winner we can award a £100 Amazon voucher.