What carries more weight in an IR35 enquiry: your written contract or the reality of the situation?
Your actual working practices are more important than your written contract in the event of an IR35 investigation. This is because they are a true reflection of the reality of the relationship and HMRC will prioritise this over any written agreements in place.
When dealing with an agency or client, a generic contract is usually issued and sent to hundreds, if not thousands of other contractors. Over the years many recruitment agencies have adapted their standard contracts following pressure from contractors so the terms are broadly IR35 compliant. However, this may not bear any relation to how the contractor is treated and perceived by the end user and that will end up taking precedence.
IR35 enquiries
In the event of an IR35 enquiry your working practices will always carry more weight than the written terms in a contract. The written contract is the first port of call for HMRC, but if they subsequently find that the actual facts don’t match they will effectively say the contract is worthless. Therefore if you do have a complaint contract in place, it is crucial that your actual working arrangements mirror the written terms.
For example, the Dragonfly vs HMRC case of 2008 was won by HMRC and the contractor was found liable for £99,000. In this case, it was found that the contractual terms, whilst positive from an IR35 perspective, did not reflect the true reality of the contractor’s working practices.
Unknown quantity
Naturally a common problem with assessing your working practices is that you won’t actually know what they are until you are on site. There are also some issues in IR35, like substitution, that are largely hypothetical and difficult to clarify. All you can do is satisfy yourself that, to the best of your knowledge, you are seen as and treated like an independent supplier rather than a permanent employee.
Most IR35 accountant specialists will offer to review your actual working and business practices as part of a contract review, which is an advisable route to take.
If you have any concerns about your IR35 status, contact our experts.
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