IR35 True or False

There is a way round being caught by IR35 legislation

The basic premise of IR35 legislation relates to the actual relationship between contractor and client. Any number of dodges, third parties, contractual clauses and representations can't hide the facts. If you're new to contracting we have helpful guides for you.

• If the working relationship between contractor and client would be normal employment, if it were not for the existence of an intermediary, then the contract is subject to IR35 and resulting tax and NI payments.

I can use an IR35 ‘proof' contract approved by HMRC

There is no such thing as an IR35 'proof' contract. Many so-called IR35 'proof' or 'friendly' contracts are drafted without consideration for the real situation or the requirements of clients and agencies.

To avoid the contract or clauses being labeled a sham, contractors should ensure that contracts are professionally drafted, industry specific and truly reflect the relationship.

• Individual contracts have been approved by HMRC in individual circumstances but HMRC have not given 'blanket' approval to any 'product', nor will they.

IR35 decisions are entirely based on the contract

This is wrong as HMRC can look at all of the working arrangements. In addition to the contract, the schedule and description of the work will be considered.

Even if the contract contains all the terms associated with self-employment the work undertaken and the contractor's business practices and the actual working arrangements will also be investigated.

The Client/Agency contract is not important

This contract is relevant to HMRC and should ideally mirror the terms of the agency/contractor contract. Although the service company is not a party to the client/agency contract the IR35 legislation looks at the commercial relationship between the worker and the end client as evidenced by all of the contracts involved.

• It would be unwise to rely upon the agency as being interpreted as the client in the legislation.

A substitution clause is all that is required

A genuine right of substitution is an important factor in determining self-employment status. However many attempts at including substitution do not take into account the relevant Case Law, the client's requirements and industry practice.

There are important legal distinctions between assignment, substitution and sub-contracting that need to be taken into account and in the absence of actual substitution a clause may not be relied upon to keep the arrangements outside IR35.

If you would prefer the easier & cheaper way to contract, check out the advantages of using an umbrella company.