IR35: The Key Areas for Risk
If you are contracting on a role for a small UK company or company outside the UK then the IR35 decision will remain yours to declare yourself inside or outside.
There are four main areas which are as follows;
- Personal Service/Substitution – If the contract states a specific individual to provide the services, then there is a stronger suggestion that this would be at risk of IR35, however if you can subcontract out some of the work or bring in a substitute to cover you then that is another matter, as this is often considered the strongest argument against IR35.
- Supervision, Direction and Control – The more direction and control the contractor has over the services the better, if a full degree of autonomy is not shown over the work provided then this could be an IR35 risk. As a true contractor should be being brought in for their specific skill set and therefore should not be told how they should go about their work.
- Mutuality Of Obligation – What this means is that there is no obligation on either the contractor or the client to offer or be offered continuing work. So once a project/scope of work has been completed that the contract would then terminate, and if a new project/scope of work arises both parties have to re-engage and both have the option to accept/decline the work offered.
- Financial risk – If a contractor does something wrong, the mistake should be corrected by the contractor at their own cost. Also, any risk of damages or penalties caused by the contractor’s errors/negligence so this is why professional indemnity insurance is a requirement for a lot of contracts.
Although the above are very important there are some other important factors to consider including:
- Own Equipment – Providing own mobile phones and computer/laptop is a positive, as these being provided by the client could be an employment indicator. Although in certain circumstances it may be for security reasons that equipment cannot leave the premises then this would be a different matter.
- Other work – If a contract states the contractor is unable to carry out any other work other than due to a conflict of interest issues then this could be seen as indicator of employment
- Part and parcel – Whether you are seen as part of the organisation you are contracting to. This includes having a client email address, being on internal employee lists etc.
- Being in business – General proof that the contractor is in business, examples are having business insurance (this also coincides with financial risk) and having a website, business cards etc.
Remember the contract is just the starting point and a full working practices review is necessary to see the bigger picture.
IR35 Is very complex so we would always advise to seek advice from a professional.