The complicated nature of the IR35 rules means deciding IR35 status isn’t always black and white. Many different factors need to be taken into account before a contractor is classed as genuinely self-employed (outside IR35) or as an employee for tax purposes (inside IR35).
You’ll often find contractors asking, “If I have more than one client does that mean I belong outside IR35?” and “I have the right to provide a substitute, surely I’m a genuine contractor?” or even, “I never work at my client’s office, there’s no way I’m inside IR35, is there?” The same goes for the length of a contract: “Is there a time at which a contract will transfer from outside to inside IR35?” And, “Is HMRC more likely to open an IR35 enquiry the longer a contract runs for?”
In this article, we’ll drill down into what relevance – if any – the time spent working on one contract has when it comes to your IR35 status.
Contract length doesn’t determine IR35 status
For the avoidance of any doubt, there isn’t any one point in time at which an outside IR35 contract is automatically classed as inside the legislation – not after one, two or even twenty years.
But whilst status should be decided after standing back and focusing on the overall picture of the working engagement – from length of time to personal service and control – time spent engaged by the same client could play a part in HMRC taking the view that it could be classed as inside IR35.
As IT Contracting explains, this can even be the case if the contract is renewed – meaning that it’s technically a new engagement. HMRC’s Employment Status Manual states: “Where work is regularly offered and accepted over a period of time a continuous contract of employment may be created.”
Hawksbee’s 18-year stint at Talksport not pivotal in IR35 case
That’s not to say holding successive contracts means you belong inside the legislation, though. Far from it, in fact. Take the case of TalkSport presenter Paul Hawksbee – despite having supplied his services to the radio station for nearly two decades, a judge found him to be outside, albeit only just.
The fact that Hawskbee wasn’t controlled by his client and that Mutuality of Obligation didn’t exist to the “irreducible minimum” was considered more important than the length of his service. As a result, this case in particular, highlights the importance of prioritising the three key tests, Personal Service, Control and Mutuality of Obligation above anything else when assessing status.
Even so, start and end dates are advised
Regardless, having fixed start and end dates when working outside the legislation matters. By not working on a rolling contract you strengthen your status as a genuine contractor. It’s therefore worthwhile to set a project or contract length, which may prove useful in evidencing that you aren’t ‘part and parcel’ of your client’s organisation.
As you’ll probably have gathered from this article, while there’s nothing stopping you from working outside IR35 for the same client for decades, HMRC may try and use it against you. With this in mind, it’s important to make it absolutely clear that IR35 doesn’t apply to your contract. In other words, don’t give HMRC the opportunity to build a picture of employment.
You can do this by having your contract reviewed from an IR35 perspective before you start, while a review of your working practices is also recommended, given this reflects the reality of the day-to-day engagement.
With over 20 years’ experience in supporting contractors, QAccounting is one of the UK’s leading contractor accountants. Offering a range of trusted accountancy services, including IR35 contract reviews through our partner, Qdos Contractor, we are rated 4.6/5 by our customers. To learn more about our IR35 solutions and accountancy packages, please arrange a callback.
Corporation Tax Rate Changes
Rishi Sunak has proposed a number of changes to the way that Corporation Tax will be calculated and applied. Learn more.
Autumn Statement – Headline Changes
Autumn Statement – Headline Changes
Extracted from the ACCA Guide to the Autumn Statement 2022
Why Freelancers Should Hire an Accountant
In the world of work, freelancing is an increasingly popular option. The promise of flexibility, unlimited earning potential and complete control over the way you work is a hugely attractive prospect for many.
Although freedom is one of the big draws of the freelance lifestyle, there’s still plenty of financial responsibilities that come with it that can really eat into your time and profits.
But do freelancers really need the services of an accountant? Let’s find out.