High profile IR35 cases continue to grab the headlines with recent victories for the taxpayer including Gary Lineker, Adrian Chiles and Kaye Adams. But set against that victories by HMRC in the cases against presenters Joanna Gosling and Tim Wilcox.
By Chris Davies
What these cases continue to show is the confusion and grey area surrounding employment status, IR35 and off-payroll arrangements.
Determining IR35 employment status involves considering various factors to establish whether a worker is genuinely self-employed or should be deemed an employee for tax purposes. There is no definitive list of factors, but key elements to consider include:
- Control: How much control does the client have over the worker’s tasks, working hours, and the manner in which they complete the work? More control may suggest an employee-like relationship.
- Substitution: Can the worker send a substitute to complete the work on their behalf without needing the client’s approval? Genuine self-employed contractors often have the right to provide a substitute, while employees generally do not.
- Mutuality of Obligation (MOO): Is the client obliged to provide work, and is the worker obliged to accept it? An ongoing obligation to provide and accept work could suggest an employment relationship.
- Financial risk: Does the worker bear any financial risk, such as investing in equipment or being responsible for correcting unsatisfactory work without additional payment? Self-employed workers usually assume more financial risk than employees.
- Provision of equipment: Does the worker provide their own equipment and materials? Contractors generally supply their own equipment, while employees rely on their employer.
- Integration: Is the worker integrated into the client’s organization, such as being included in organizational charts or having a company email address? Greater integration could indicate an employment relationship.
- Intent of the parties: What is the written and practical relationship between the worker and the client? A written contract clarifying that the relationship is not one of employment can be helpful, but the actual working practices will also be considered.
- Exclusivity: Is the worker required to work exclusively for the client? Contractors typically have multiple clients, while employees are more likely to be exclusive.
- Length of engagement: Long-term engagements with a single client might suggest an employee-like relationship.
- Payment terms: Are payments made on a project basis or at regular intervals, like a salary? Employees typically receive regular payments, while contractors are paid per project or task.
The Courts use these factors, among others, to determine IR35 status on a case-by-case basis. It is important for both clients and contractors to carefully assess their working relationship to determine whether IR35 applies.
Note that in April 2021, IR35 rules were reformed for those contracting in the private sector, shifting the responsibility for determining IR35 status from contractors to medium and large-sized private sector clients.
As Court cases show this is a complex area and using an accountant or tax specialist with experience in this area for your tax affairs is strongly recommended, so do get in touch. Don’t leave it until a brown envelope from HMRC arrives on your doormat.
