Intention of the Parties as an IR35 Factor

Intention of the Parties as an IR35 Factor
Intention of the Parties as an IR35 Factor

Intention of the Parties

Intention of the Parties is one of the factors affecting whether a contract is inside or outside of IR35. Do the two parties, the client and the contractor, intend this to be a relationship between a contractor and a company or one of employment. It is important that this relationship is stated explicitly in the contract. Otherwise, HMRC will just say that they have to look at the working practice and the level of control etc.

The next problem is that although Intention of the Parties is an important IR35 factor, HMRC have tried to overrule it in the past when it is stated in the contract. That’s if they think that the actual working practice is different. They believe that what the contractor is actually doing at a company, and how the company controls the contractor (or doesn’t) is a far more important factor.

Stated Explicitly

The contract should document the Intention of the Parties. Evidence should  back it up when the contractor is working at the company. There is no good stating the intentions of both sides in the contract if the contractor / client relationship appears to be little different from that between a permanent employee and the company.

HMRC have sometimes argued that the intention of the parties in the contract is a sham. They say it has been created for the purpose of showing the contractor to be outside of IR35.

The intentions of the Parties is not a major IR35 factor. It would only really be a ‘tie breaker’ when you tot up other factors together and they are equal.

So, have it explicitly stated in the contract. Also, have your working practices as that between a supplier and customer rather than on an employer and employee basis. That’s if you want Intention of the Parties to be a plus factor in getting you outside IR35.