Read below and find out the top 5 factors which will help to show you’re not a disguised employee. Click here to read part 2.
As a Limited Company Contractor, IR35 is an important consideration for you as it sets out the law relating to tax treatment of your income and also determines your tax position with HMRC. Contractors that fall outside IR35 are entitled to receive payment in the form of dividends. Those who fall inside IR35 rules are seen as ‘disguised employees’ and are only entitled to receive payment on a PAYE basis – albeit this can still be through their Limited Company.
Therefore, being caught by IR35 does not prevent you from working through your own company, it just means that you need to tax yourself differently if the assignment is one which falls within IR35.
The following series of questions can give you an indication as to whether you would be deemed to be an employee or self-employed. If the majority of answers to the below questions is ‘Yes’, the more likely it is that the assignment will fall inside IR35 and therefore you would be considered a ‘disguised employee’ of the end client for tax and national insurance purposes:
- Do you have to do the work yourself?
- Can the Client tell you at any time what to do, where to carry out the work or when and how to do the work?
- Do you have to work a set number of hours?
- Does the Client provide you with all equipment?
- Can the Client move you from task to task?
It is important to reiterate that these questions will not set your IR35 status in stone, and other aspects will be considered by HMRC, but it does provide an indication as to how you work. Brookson offer unlimited IR35 Reviews and advice at no extra cost to make sure you operate compliantly.
The following factor will help demonstrate that you are not a disguised employee onsite and caught by IR35, but a professional review is highly recommended to ensure your employment status is correct and that you cannot be classed as being in disguised employment.
1. Ensure your contracts are accurate and consistent
It makes little sense having a contract that states that you will be subject to the control of the client, or that the client’s processes and procedures will apply to you when they don’t in practice. Also, make sure that the contract between the agency and the client does not contain anything that contradicts your contract with your agency.
It would make good practice, if you work through an Agency, to ensure the Client is in agreement with the key IR35 clauses contained within the contract. If the contract contains a substitution clause, but the Client says that this isn’t workable, this could make the Contract a sham meaning that you would be unable to rely on such clauses.
We always recommend that you provide a copy of your contracts to Brookson Legal Services before you sign, in order to ensure that the contract supports your position as a true independent contractor.
2. Make sure your client thinks the same way you do
If your client sees you as an extension of its own workforce, the company is more likely to treat you as an employee. Make sure they know that you have been contracted for a specific reason and that they treat you as an independent of their organisation throughout your assignment. If they integrate you into the organisation in a similar way to how they integrate employees, this will be damaging to your IR35 Status.
This is particularly important when your client representative (i.e. The person who would liaise with HMRC in the event of an IR35 enquiry) is different from the individual who hired your services or worked with you day to day at the outset of the project. If necessary, provide a copy of your contract to the client representative or even agree a “working practices statement” (which Brookson Legal Services can assist in drafting) which sets out how you intend to work/be treated whilst on an assignment with the client to avoid any misunderstandings.
3. Demonstrate that you are treated differently from your client’s employees and therefore not a disguised employee
Different pay and benefits alone will not be enough to support your status as an Independent Contractor. Flexible working, working on multiple assignments for different client, providing your own equipment, working on a specific package of work for a fixed fee and/or a fixed period are all good ways of showing that you are truly independent.
4. Provide services on short term project basis assignment
Whilst providing services on an assignment that lasts a number of years, will not bring you within IR35, it would make good practice to work on short-term projects. By doing so, you will build a client base, which can make it difficult for HMRC to say you are an employee of one of your clients.
5. Working as part of a team does not automatically render you a disguised employee of the client
It is essential however, that you can separate your work from the employed workforce and agree the scope of the work you undertake at the outset of the assignment and reference this within the contract. Working alongside employees doing similar work and being continually allocated further work by the client, particularly without putting in place additional contracts, could show that you are doing the role of an employee and being treated as an employee.
If further work comes up which you are happy to do, make sure you agree a new contract before you start working on it. This also gives you the opportunity to renegotiate your rate.
To read part 2 of this blog, which includes additional factors which help you show you’re not a disguised employee, please click here.
Over the last 20 years, Brookson have helped over 90,000 contractors, freelancers and self-employed professionals, just like you to save time, money and hassle with our comprehensive range of accountancy, financial, legal, insurance and business services. If you think Brookson could assist you in your contracting career book a free consultation today!