Read below and find out the key factors which will help to show you are not a disguised employee. To read part 1 click here.
6.Provide a substitute
Whilst it is not essential that you provide a substitute and you only need to show that you have a valid right to provide a substitute, having a substitution clause within the contract will only benefit you if you can persuade HMRC that this right can be activated in practice and your client will accept a substitute.
Not only does providing a substitute give you unequivocal evidence that you are not obliged to offer a personal service, and therefore cannot be a disguised employee, it can also enable you to profit further from the assignment by supplying cheaper labour to perform the services on your behalf. It could also give you the flexibility to work on another contract with a different client.
7.Project-based assignments are significantly better than period based ones
Being engaged on a specific project enables you to quote a fixed fee and work flexibly as long as deadlines and project completion dates are met. It also indicates that the work will come to an end at some point. Being engaged on an ongoing basis may indicate that you are only there for as long as the client requires or until the client recruits a permanent employee to do your job. This could look like the client is treating you as if you were that individual until someone permanent comes along which can potentially make you a disguised employee.
8.Manage your own assignments
As an independent contractor, you should determine the hours required to complete the work. It is important that you take control over managing your assignments and don’t rely on being allocated work. This will also enable you to quote a fixed fee for the project and/or undertake work for other clients alongside your assignments.
You should also be able to demonstrate that you retain the discretion to determine where to perform the services from. If the Client is controlling what work you do, when you do it, where you do it from and how you do the work, you are likely to be viewed as being in disguised employement and can be caught by IR35 rules even if you have your own company registered that pays tax. The importance here is the tax and national insurance that depending on your IR35 status, you will need to pay and how.
9.Demonstrating that you are exposed to financial risk
HMRC like to see Independent Contractors showing a lack of financial security and from time-to-time incurring losses, even though this doesn’t make good business sense. This could involve you showing that you have financial risk in terms of bad debts, rectifying work at your own cost and investing in your company, all good ‘badges of trade’. Keep records of any such instances occurring as they will prove useful in the event of an IR35 legislation enquiry.
10.Working for multiple clients and investing in your own company is a good way to show you are not a disguised employee
The more clients you work for, the easier it is to demonstrate that you are self-employed, whereas only having one client as your sole source of income for a lengthy period of time may suggest that you are working on an ongoing basis, similar to an employee. To counteract this, pay for your own training and provide as vvvvmuch of your own equipment as possible and pay for them through your business to ensure they are properly accounted for.
To read part 1 of this blog, which includes additional factors which help you show you’re not a disguised employee, please click here.
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