What are the minor IR35 status tests?
Two weeks ago, the IR35 reforms came into effect – shifting the liability for IR35 status to the fee-payer. As previous IR35 case law shows, a holistic view of a contractor’s working practices is taken…
Not long to go now until the private sector IR35 reforms come into effect on 6th April, and your questions for Andy Vessey are coming in thick and fast. Andy is Kingsbridge’s Head of Tax and has more than 20 years of experience defending IR35 cases – nearly always winning.
This week, your questions look at what happens if your client retains the right to reject a proposed substitution, whether there are risks to working both inside and outside IR35, and what happens if you move abroad.
If a contractor has right of substitution in their contract and the client has the right (depending on the project status and milestones at the point of being offered a substitute) to either accept or reject, would that automatically put the contractor inside IR35? I have clients that have said they will accept a substitute if it is warranted, but would reject if they are in no rush to complete the deliverable.
Where an end client can reject a substitute for any reason whatsoever, then this diminishes the right of substitution and may mean that the reality is the worker has to provide the services personally, and therefore that the right of substitution is not genuine. However, personal service is only one of a number of employment status tests, albeit a most important one, that have to be examined when considering a worker’s IR35 status. There may be other persuasive factors that point towards self-employment. It is necessary to consider all factors and not just focus on one test in isolation when determining a contactor’s employment status. A good example is the Upper Tribunal’s recent decision in HMRC v Atholl House Productions Ltd. In that case, Kaye Adams, a journalist and broadcaster, failed the three key tests of status, i.e., right of control, personal service and mutuality of obligation, yet was still able to be deemed ‘outside’ IR35 by virtue of the fact that she was running a genuine business.
I started contracting in Nov 2019 and have been working for my current client since this time, with a few days consultancy carried out for a different company last November.
Last year my client gave me an ‘inside IR35’ determination, which I contested mainly on the basis of bearing financial cost/risk before being paid. For example, as a condition of the contract I had to provide evidence of Professional Indemnity and Product Liability insurance to a required level of cover. I believe this would not be required of me if I was working inside IR35 via an umbrella company. Introduction of the new rules were delayed before I got a response.
I have not yet received a determination this time but I would consider going inside IR35 for this contract, in order to remain in employment and see the project through. I’d maintain my limited company for any work that comes in outside IR35. What are the risks of taking this approach and what can I do to mitigate them?
HMRC are more than happy for you to work ‘inside’ IR35. The department has given numerous reassurances that they will not use information acquired as a result of the changes to the off-payroll rules to open up IR35 enquiries into previous years provided there has been no fraudulent or criminal behaviour. This includes Status Determination Statements which were prepared for the current tax year. This statement can be found in ESM10036.
HMRC took the same approach with the public sector and, thus far, have been as good as their word.
I’m currently working as an employee but moving overseas and considering setting up a limited company to continue working for my employer as a contractor. I don’t plan to return to the UK for the 2021 year. Will I be considered inside IR35?
If you remain a non-UK resident for the tax year 2021/22 by virtue of the tests laid down by the statutory residence test, and therefore not liable to UK tax, then IR35 is unlikely to be an issue.
How to Ask Andy…
Asking Andy a question couldn’t be easier – although you best hurry to get them in before the IR35 reforms launch in just a few short weeks. Simply complete our straightforward form and Andy will do his best to answer right here on our blog.
Now is also the time to do your own research into your status determination so that you can make an informed decision as to whether or not you agree with your client’s SDS. A tool such as the Kingsbridge IR35 Status Tool is really useful for this. Developed by Andy, it asks you a series of questions on your contract and working practices before issuing you with an inside or outside determination and full report. If your status is indeterminate, your case is handed to an IR35 specialist at Kingsbridge for review, so you can be confident in the outcome. All for just £50 plus VAT.
