Are you inside or outside IR35?

23 November `20

A list of common IR35 review questions and useful tips for when you’re undertaking an IR35 review.

To understand whether you’re inside or outside IR35, you should carefully consider your engagement, working environment and your contract.

Inside IR35 v Outside IR35

IR35 is the name for a piece of tax legislation. If you’re a contractor and working “inside IR35”, then you’re considered a “disguised employee”.

You want to stay “outside IR35” – meaning IR35 does not apply to you.

The best way to make sure you’re outside IR35 is to undertake an IR35 review. You should always answer the questions as accurately and honestly as possible.

If you believe your engagement is “inside IR35” you should talk to your end client and change your engagement conditions.

It’s important to be aware that your responses are reviewed together. Some questions have more importance than others and answering a few “wrong” does not automatically make you “inside IR35”.

I highly recommend that you undertake an IR35 review before deciding your IR35 status.

Your company

Questions you may be asked during an IR35 review:

  • How long has your company been trading?
  • Does your company have other directors and/or employees who can undertake services?
  • Has your company/will your company undertake any separate contracts with this engagement?

You should show that your business is an established business operating like a standard trading business.

It’s great if you can demonstrate that you work on multiple engagements at once.

Your engagement

Questions you may be asked during an IR35 review:

  • Is there/will there be a specific end date to this contract?
  • Do you/will you provide materials as part of this contract (excluding the provision of equipment), which cannot be claimed as an expense from the end client/agency?
  • Please provide a description of the services you are/will be providing for this particular engagement.
  • What is/will be the nature of the services provided?
  • Do you/will you hold a role with a high level seniority and / or responsibility within your end client’s organisation?

Your engagement should be for a specific period of time and for a specialist skill that’s not already available within the end client organisation.

You should avoid a role with high level seniority and responsibility within your end client’s organisation.

Right of substitution

Questions you may be asked during an IR35 review:

  • Regardless of the written terms of your current/impending contract, if you were unable to provide the services, would the end client accept your business sending another person to undertake the services on your behalf, provided they were suitably skilled and qualified?
  • Have you ever exercised a right to provide a substitute for this particular contract?
  • Could you engage helpers on behalf of your business to assist in providing the services?
  • Have you ever engaged helpers to assist in providing a significant amount of the services, for this particular contract?

In reality, would your end client accept a substitute? A lot of engagements have this written into them. However, it’s rarely actually accepted or put into practise.

Exercising your right to provide a substitute is a great indicator of being “outside IR35”.

Another option is to independently hire a person to do a task for you, therefore helping you to deliver a project. Although it’s not as good as substitution it shows your autonomy from your end client.

Client control

Questions you may be asked during an IR35 review:

  • Does/will anyone provide any instruction or direction on your method of work?
  • Are you/will you be subject to any regular ongoing monitoring or supervision by the end client?
  • Are you/will you be required to follow the end client’s specific employee procedure, processes or guidelines in relation to how to carry out the services?
  • Are you/will you be able to use your own equipment in the provision of your services?
  • Does or will the end client have the right to move you on to a different task/project other than originally contracted, in the event that additional resources are required due to a change in priorities?
  • Do/will you have to obtain the end clients permission to take time off?
  • Does/will anyone dictate your working hours? If so please state why this is.
  • Can/will you decide where the services are carried out?
  • Are the services you are/will be required to provide of a specialist nature, which your end client is not able to source in house?

If you’re “controlled” by your end client there’s a danger you’ll be found  “inside IR35”. You should avoid any situations where you are managed or supervised by your end client. 

You should not be requesting time-off, moved to projects not in the engagement and when possible you should use your own equipment. 

You should not be included in any employee processes or procedures. Think about your circumstances, are you treated differently to the permanent staff?

It’s ok to receive requirements and project instructions as long as they are related to your engagement.

Genuine business

Questions you may be asked during an IR35 review:

  • Have you paid or will you pay for equipment or training, which is vital to the provision of your services, through your company? If so, please give details.
  • Does your company have its own website and/or company stationary?
  • Are you/will you be required to submit an invoice for the payment of the services?

A business operating “outside IR35” should have it’s own website and always submit invoices for services they undertake.

You should never expense the cost of training or equipment to an end client, but instead pay for it through your own company.

Mutuality of Obligation

Questions you may be asked during an IR35 review:

  • Once the contract has ended, is there an obligation (written, implied or otherwise) for the end client to provide you with further work?
  • Can you/will you be able to decline additional work not covered in the initial contract which might be offered by the end client?
  • Are you/will you be able to terminate the contract during the agreement?
  • Does/will the end client have to give notice to terminate the contract? If so, how much notice are they required to provide?

Your client should not feel obliged to provide you with more work. If they do feel obliged to give you work, that indicates that they have control and therefore you could be “inside IR35”.

You should also be able to decline additional work not covered in the contract. This shows your independence from your end client.

Relationship with your End Client

Questions you may be asked during an IR35 review:

  • Were you ever a direct employee of your end client?
  • Do/will you have any line management responsibilities over the end clients own staff?
  • Are you/will you be required to mentor or train the clients staff (excluding contracted services)?
  • Are you/will you be required to attend any training requested by the client?
  • Are you/will you be required to regularly attend meetings? If so, please provide a description of the type of meetings you attend.
  • In the course of your work, are you/will you be easily identifiable as an external contractor? If so please give more details.
  • Do you/will you have any direct involvement with the end clients customers / clients?
  • Are /will you ever be paid by your end client for time when you are not providing the services?
  • Do/will you receive overtime?
  • Do/will you receive any staff benefits from your end client? If so, please specify.

You should distance yourself from your end client as much as possible. You need to demonstrate that you’re an independent business and not a permanent member of staff.

You should not work for a client where you’ve previously been an employee. This is especially true if you’re doing similar tasks. Avoid this at all times.

It’s ok to be involved in meetings as long as they are to do with your engagement. General employee meetings shouldn’t be extended to you, and you should avoid these.

You should not:

  • Accept benefits from your employer eg. paid days off, pension, bonuses ect.
  • Claim overtime
  • Attend training that’s paid by your end client
  • Be paid for time when not working

Financial Risk

Questions you may be asked during an IR35 review:

  • If you delivered faulty work would you be required to rectify such work in your own time and at your own cost?
  • Have you ever had to rectify faulty work at your own cost during this contract?
  • Are you/will you be required to carry business insurances such as professional indemnity, or public and employers liability insurance for this contract?
  • On what basis are you/will you be paid for the work?

Taking on financial risk is an indicator that your engagement is that of an established company.

Ideally, you want to be paid a fixed rate for a job. This shows you’re taking on the financial risk for the engagement. However, it’s very common to be paid daily or hourly. You should avoid being paid monthly.

Having insurance and requiring it as part of your engagement demonstrates that your company is taking on risk and takes account of it’s risk on engagements.

Start an IR35 Review with QDOS