Staying Outside IR35 – Why Hamish is outside IR35

Staying Outside IR35 - HMRC advice
Staying Outside IR35 - HMRC advice

Staying Outside IR35

Staying outside IR35 is crucial to the wealth of IT Contractors in the UK. Here are some HMRC guidelines on a small business which stays outside of it.

The sole worker, shareholder and director of H Ltd is Hamish who contracts through an agency to an end client.

He has been with the client for 4 years on a number of contracts during which time he was worked with no other client.

He charges hourly and sends invoices monthly.

Substitution Clause

He has a substitution clause with the agency who also has one with the client and the client accepts he could send a substitute and he has named two – although he hasn‘t used one in the 4 years there.

He uses his own equipment and bears the cost of it.

Why Hamish is outside IR35

Personal Service

Even though Hamish has never sent a substitute they would accept one and so Hamish‘s service is not a personal one.

IR35 can‘t apply if the client doesn‘t need a worker‘s personal service.

So, this is a clinching argument that IR35 doesn‘t apply – game, set and match.

Other Factors

Hamish spends a lot of money on his equipment and maintaining it which gives him financial risk.

Therefore, this is a very strong pointer that it does not apply to him.

So, the two clinchers for him are that the client would accept someone else to do the work so it is not a personal service and by buying equipment Hamish is incurring financial risk. Comment

Substitution appears to be a very important factor.

The fact that he never used a substitute in 4 years was less important than the fact that two contracts between agency and client, and agency and Hamish, had substitution clauses and substitutes named.

Buying your own equipment seems important too.

Things are getting clearer.

Staying outside IR35 is crucial for contractors if they want to keep more of their hard earned money.