How do you know whether your contractor is IN or OUT of IR35?
Are you ready for IR35? IR35 is perhaps the biggest change in taxation for contractors and professional services companies in the last 20 years. Employers will be responsible for determining a contractor’s employment status.
Here are four key tests you should consider when determining if your contractors fall under the new IR35 legislation or not.
- Mutuality of Obligation
This is a key test to determining whether a contractor is truly self-employed. Can the contractor, as the worker, accept and reject work? As a contractor, can they decline an assignment or a piece of work. If mutuality of obligation exists, they could fall outside of IR35.
Does the role allow for the contractor to substitute themselves, at their own cost? For example, if the contractor is taking time off for medical reasons, can they send someone in their place, at their own cost. If they can’t send someone else, they could be within IR35.
- Supervision and control
A contractor agreement that specifies terms like mandated hours they are required to work, is one that points towards employment (inside IR35) rather than self-employment. If they are providing services for the agreed job but also working on different tasks, the contract could be outside of IR35.
- Part and parcel
If contractors are embedded in the company structure this is more employment rather than self-employment, and therefore likely inside IR35
Here are a few further questions to consider when determining the IR35 status of your contractors:
Are they using company equipment such as laptops and mobile devices? HRMC often says if the contractors are using client equipment, they are a disguised employee.
Are your contractors required to have professional indemnity insurance? Like most businesses, self-employed contractors are typically prepared to take on some level of financial risk.