Supervision Direction and Control a Major IR35 Factor
One of the big three factors as regards whether a freelancer is caught by IR35 or not is Supervision Direction and Control. It decides whether it is a master / servant relationship or is it one between equals. There are two parts to supervision direction and control. The first is what the contract says. Is it a Contract of Service or is it a Contract for Services?
The second is what is the relationship in reality? The judge can override the contract if the reality on the ground is actually a relationship of master / servant.
The most important thing here is for the freelancers to differentiate themselves and their way of working as far as possible from the permanent employee.
Seven Factors that Determine Supervision Direction and Control
There are 7 main factors which determine if a contractor is inside IR35 or outside it. It is crucial that contractors and freelancers remain outside or they will pay a lot more tax.
- Whether the Manager is a Controlling Person or not
- If a manager tells an employee how to do a task
- The employer supervises the employee
- Whether the client and the contractor agree the time frame or not
- Whether the client and contractors agree whether the task should be done or not
- Agreeing the Use of Equipment
- Place on the Company Hierarchy Chart.
Whether the Manager is a Controlling Person
Supervision Direction and Control – The manager or controlling person, tells the employee what to do and he, or she, does it. The freelancer decides what needs doing and does it after a broad outline form the client. What contractor negotiates what to do with the client. They put an agreement between two equals, supplier and customers, in place.
Whether the Manager Tells an Employee How to Do a Task
The boss tells an employee how to do a task. The freelancer decides how to do the task. So, there is no control of the freelancer.
Whether the Manager Supervises the Employee
The employer supervises the employee during the performance of a task whereas a freelancer is self supervised. So, there is no supervision direction and control.
Whether the Client and Contractors Agree the Time Frame
The employer tells the employee how long a task will take and he, or she, tries to do it within that time. The freelancer negotiates how long a task will take with the client and agrees the time frame. So, he or she is not under their supervision direction and control.
The Client and Contractors Agree Where the Task Should be Done
The company tells the employee where the task should be done. The freelancer decides where the task should be done, at the office or at home or elsewhere. He, or she, will negotiate this with the client. Minute that you negotiated an agreement between equals about where it is best that the work takes place. So, there is no control here.
Agreeing the Use of Equipment
The company tells the employee which equipment he, or she, should use, e.g. the PC to complete the task. The Freelancer will decide himself, or herself, which equipment is best to use for the task whether it is his or her own PC or the companies. He, or she, will negotiate this with the client. Again there is no control.
Company Hierarchy Chart
The Company will place the Employee on the Company’s Hierarchy Chart showing whom he, or she, reports in to. The Freelancer will not appear on this chart. So, there is no supervision direction and control of the freelancer.
Indeed it would be best that you draw an East-West Chart showing two bubbles or two boxes with arrows going between the two showing a supplier / customer relationship and what needs to be supplied by the contractor to the client (and vice versa). Furthermore, both parties should sign his chart as showing the nature of the relationship.
Differentiating Freelancers and Employees
If all of these hold true then this is a contract for services. However, even if some of them are true this differentiates freelancers from employees.
It is all about differentiating yourself from company employees as much as possible via the contract and the actual working practices.
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