Basis of Payment as an IR35 Factor

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Basis of Payment
Basis of Payment as an IR35 Factor

Basis of Payment

Basis of Payment refers to the way that a contractor is paid. A contractor on a contract for services should be paid differently than an employee on a contract of service. It is crucial that a contractor or freelancer differentiates himself or herself from an employee as much as possible.

Differentiation Between Contractors and Employees

Again, though, this is about differentiating yourself in the way you operate from employees.

1. Be paid Daily

If they pay them monthly and they pay you daily or by the hour then that would surely show Basis of Payment as a differentiating factor

2. Use Your Own Time Sheets

Make sure that you use your own time sheets rather than the company ones that the permanent employees use

3. Issue invoices to the client

Or get your umbrella company to do this.

4. Avoid Claiming Expenses

Don’t claim expenses, e.g. for travel from the company as a permanent employee would. Ask if there is any travel or accommodation expenses before you start. Incorporate that into your rate. If you do claim expenses don’t do it on the company expense claim form

5. Avoid Contract Overtime Clause

Don’t have a provision for overtime in your contract. If they require you to do any extra time try to have it as a fixed price for fixed tasks

6. Specify What Bonuses Are For in Your Contract

If you are offered a bonus make sure it is very specific what it is for. Bonuses for permanent employees tend to be team bonuses or are arbitrary and not specific if it is for an individual. Make sure that your bonus is calculable, e.g. for finishing work on time or a set amount for each day you finish ahead of time.

Basis of Payment is not an overriding IR35 factor but it will be a point in your favour if the company pays you differently than the employees of the company. It is all about differentiating yourself in the way you operate from the employees of the company.

Basis of Payment Not Overriding IR35 Factor

The first thing to be said is that even HMRC have said that Basis of Payment is not an overriding factor when it comes to deciding whether someone has a contract of service or a contractor for services. IR35 would catch the first one and the second would be outside of it.

Normally someone who is in business on his or her own account would negotiate a set price for doing a job. They would pay an employee by the hour, day, week or month.

Daily Rate Contractors

However, HMRC have said that someone who is paid by the hour or day may well be self-employed.

Indeed, saying that someone paid by the hour or day is tending to being caught by IR35 may be an old-fashioned way of looking at it. They pay very few employees, certainly in the professional classes, nowadays by the hour or day.

To find out all the major and minor IR35 factors click on IR35 Factors

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