Stay Outside IR35
To stay outside IR35 is crucial for the financial health of contractors.
Nothing is certain in an IR35 case but here we put together some factors that seem to point to IT Contractors being outside IR35.
Advice for Contractors (courtesy of the Special Commissioner)
Here are the pointers for ordinary contractors, that the Special Commissioner considers helps their case for being a small business rather than an employee. All of these have come out of judgments in IR35 cases at the Special Commissioners. Following these is crucial to stay outside IR35.
Special Commissioners Advice To Stay Outside IR35
- Vary your contract hours
- State the services you will provide in your contract
- Don’t have a fixed end date in your contract
- State the work you will do in your contract renewal
- Have a Substitution Clause in your contract
- Set up a company website
- Set up an office
- Pay your own traveling expenses
- Do something specific for a client company
- Have your company name on your badge
- Have your company name listed in the Internal Directory
- Have your company name in your email address
- Don’t use the company sports facilities
- No holiday pay or sickness benefits
- Use your own equipment
- Write a letter to your agency if they don’t pay on time
- Have your own company business cards
- Charge VAT to your client
Vary Your Contract Hours to Stay Outside IR35
If you vary your hours instead of working the standard week, that will help greatly. Try to work a different number of hours than the company‘s standard week as much as possible. Employees work the standard week.
State the Services You Will Provide in Your Contract
Make sure that when you have a contract that it states the services that you will provide and the tasks that you will be doing. This makes you different from an employee, according to the Special Commissioner, as a company can‘t make you do anything that is outside the terms of your contract, like they could an employee of theirs.
Don’t Have a Fixed End Date in Your Contract
When you have a contract for six months, make sure that it states that this is just an estimate for the work. Try and make sure that you don‘t leave on exactly the end date. If they terminate your contract a week early that helps to show that the year‘s contract was just an estimate. Employers can‘t do this with their employees.
State the New Work You Will Do on Your Contract Renewal
If you renew the contract, make sure that you state explicitly what work the new contract is for. Hopefully, it will be at least slightly different from the work your initial contract states you did before.
Have a Substitution Clause in Your Contract
It’s a good idea to have to have a substitution clause. That is, that you can get somebody else to step in to do your work for you. However, it should also stipulate that the end-employer has the right of refusal on whoever you might send as a substitute. It‘s unlikely that they will ever trigger this. However, the court and HMRC have to assume good faith, and that it would happen if ever there was a need.
Set Up a Company Website to Stay Outside IR35
Set up your own web site, marketing yourself to local businesses. Disguised employees seldom do this, but small businesses do.
Set Up an Office
Make sure that you have an office set up elsewhere with a desk, a computer, and a separate phone That’s even if it is just part of your house.
Pay Your Own Travel Expenses to Stay Outside IR35
Pay for your own travel between the different sites of your clients. Employees never do that, but small businesses do.
Do Something Specific for a Client Company
Try to do something specific for a client and different from employees of the company. It doesn‘t look good to be part of a team doing exactly the same as the permanent employees. Although this can‘t always be done.
Have Your Company Name On Your Badge
If you have to wear a badge at work, make sure that it has your company name on it as well as your name. Make sure that it says you are a contractor.
Have Your Company Name Listed in Internal Directory
Make sure that your phone number in the internal directory names your company as well as yourself. It wouldn‘t do for employees.
Have Your Company Name in Email Address
Make sure that the email address that they give you at work has your company name in it, and not just your own name.
Don’t Use the Company Sports Facilities
If contractors are not able to use the sports facilities at a client‘s, don‘t ask for special permission. Not being able to use the facilities differentiates you from an employee.
No Holiday Pay or Sickness Benefit
The fact that you don‘t get holiday pay or sickness benefit will help differentiate you from an employee in the eyes of the Special Commissioner, and now HMRC. It helps to stay outside IR35
Use Your Own Equipment to Stay Outside IR35
Use your own computer at your client‘s site if you can, rather than your client‘s. Even if you have to use your clients PC most of the time, use your own for some of the time, e.g. for documents. An employee wouldn‘t be expected to buy their own computer equipment.
Write a Letter to Your Agency If They Don’t Pay on Time
If your agency ever doesn‘t pay you on time, kick up a stink about it by writing a letter to them. They have to pay within 10 days by law. Employees always get paid on time, small businesses sometimes have trouble getting paid. This will help you to stay outside IR35.
Have Your Own Company Business Cards
Make sure you have your own business cards. Employees don‘t have their own business cards, merely their company‘s.
Charge VAT to Your Client
Make sure that you charge VAT, and have it stated in the contract, even if you are not above the threshold. Employees never charge VAT – only businesses.
If you do all of those things, or even most of them, you will be able to stay outside IR35.
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