Ask Andy ? IR35 Written contracts and hourly rates

It’s December 2021 and the new IR35 legislation has been in effect in the private sector for eight whole months, but Andy Vessey, Kingsbridge’s Head of Tax, is still here answering your IR35-related questions as they come in.

This month we have had a few questions all asking about some of the ins and outs of IR35 that get into some of the nitty-gritty of individual IR35 cases. Can IR35 apply if there is no written contract? What happens if you’re paid an hourly rate? Andy answers these questions and more here on the blog.

Hopefully, some of his answers can give you peace of mind so you can enjoy a worry-free Christmas without having to think about IR35.

This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant for any tax advice.

Do you have to have a contract for IR35 to apply? Basically, I believe that after four years of cleaning for this company, I have a contract. However, the company do not (the signed copy contract has been lost) and they are using that as leverage to not pay me my 30 days’ notice money. I am now taking them to court for breach of contract as they owe me 30 days, but they are saying if they pay, they will take the tax and NI out the payment as IR35 applies to me. How can they say this and then in another breath say I don’t have a contract? I think that they are basically trying to scare me about HMRC but I’m good as all my books are up to date. If I don’t have a contract as they are implying, can IR35 apply?

While it is always desirable to have a written contract in place between the two parties, it is not a requirement of the IR35 legislation. IR35 seeks to construct the hypothetical contract, i.e., what real working arrangements existed between the worker and the client. Even when a contract is interposed between the parties, usually greater credence is given to the actual working practices, i.e., what happens on a day-to-day basis.

I have already been assessed outside IR35, by the CEST tool, by my recruiter and by Kingsbridge when checking my contract. What still concerns me is I have a contract for £220k for a series of deliverables over a two-year period. Now, the contract looks like it will be late and so will overrun, going beyond two years. I don’t get any benefits like holiday or sick pay etc., I covered the aspect of supplying someone when I am not available, although they are not named and I control my own work with only minor guidance from my client. My worry is my recruiter and client insist on working this back to a daily rate where I have to fill out a timesheet. Surely this is evidence of hourly working, just like an employee? 

Being paid an hourly rate is a common feature of modern professional working and therefore how remuneration is calculated and paid is often inconclusive. If an hourly payment-enabled your client to exercise control over you, then this would become an issue but the fact that control rests with you and that your personal service is not a requirement of the contract are very strong pointers towards self-employment and to keep the contract ‘outside’ IR35.

If being inside IR35 effectively means I am treated as an employee and therefore taxed accordingly, why do the Government and HMRC not require companies to pass on the perks that come with being an ’employee’, for example, pension and company shares. We also, despite paying full NIC, only receive statutory sick pay versus full sick pay in the case of an actual company employee. It seems the change is stacked against Limited Companies. 

I hear what you say and I, like many others, do not disagree with your sentiments. Unfortunately, the government was deaf to such arguments at the consultation stage of the IR35 reforms.

How to Ask Andy…

Andy can’t let you know if you’re on the naughty or nice list this year, but he can answer your IR35-related questions. If you have one, you can submit it using our easy online form.

If you’re wondering if you fall inside or outside IR35 for a particular contract, you’ll get a quicker, more detailed answer using the Kingsbridge IR35 Status Tool. The tool is the result of Andy’s twenty-plus years of experience with IR35 legislation. It asks you a series of yes-or-no questions (crafted by Andy) about your contract and working practices, giving you an instant, accurate inside or outside IR35 result for just £50 plus VAT. If your status is not quite clear, then your case is passed to one of our in-house IR35 elves for a manual review, giving you confidence and peace of mind.

Now all that’s left to do is wish you a Merry Christmas and a happy new year from Andy and his IR35 elves.