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Common IR35 risk factors
6 February 14 | By: Jas Jhooty
Employers who contract an individual’s services through a personal service company may not feel threatened by the recent rise in HMRC’s IR35 enquires that are currently running at a seven year high. Whilst in most cases this may be true from an employment tax perspective, a contract that is within the scope of IR35 may result in dissatisfied contractors as well as run a greater risk of the contractor accruing rights under general employment law (e.g. for backdated holiday pay), Working Time Regulations, or Agency Worker Regulations.
Bearing this in mind we list below the most common hiring business practices that increase the risk of the contractor being caught by the IR35 rules.
Independent contractors should be trusted to work their own hours to deliver on any project that the hirer engages them to fulfil. Forcing the contractor to work the same hours as other employed staff is usually seen as sign of control and is a major factor towards IR35 rules applying.
The use of a timesheets can also be problematic especially if employed staff are also required to complete them. However in circumstances where only the contractor has to fill in a timesheet then this can be used as proof that there is a specific project being worked on and that the contractor is not simply being allocated work when required.
Place of work
Most contractors who are truly in business in their own right are perfectly capable of performing some of their services off-site at their own premises. Some engager’s require that the contractor work onsite just so that they can keep an eye on them. This will be perceived as an element of control so IR35 rules would apply.
Email/telephone directory listings
The contractor should not be included in the company’s telephone directory. Neither should they be assigned a corporate email address by the engager. These inclusions will make the contractor appear to be part and parcel of the hirer’s organisation and not in business in their own right.
The contractor should not be forced to have to use the hirer’s expense reimbursement systems to reclaim any business expenses they may incur in fulfilling the project they are working on. They should have their own expenses reimbursement procedures within their own personal service company. Any expenses they incur should be included on their invoices that are presented to the engaging company.
Provision of own equipment
The contractor should supply all of their own equipment and must not be allocated any company benefits-in-kind e.g. laptops, mobile phones, vans etc.
Attendance at corporate eventsThere should be no obligation placed on the contractor to attend any non-project based meetings or events. Such meetings can include: -
- weekly staff management meetings
- team building events
- annual events – Christmas party
Attendance at such events can be perceived as the contractor being part and parcel of the organisation.
Some hirer’s find a good contractor and may not want them to leave after they have finished a particular project. They may request the contractor to stay on while another project is found for them to fulfil. If the contractor agrees to this they will almost certainly fall foul of the IR35 rules as this practice would indicate a high degree of mutuality of obligations.
How emTax can helpThere is no single determining factor in determining whether IR35 rules should apply. Instead a range of factors must be considered including: -
- Is there a mutuality of obligation?
- What degree of control does the engager have?
- Has the worker the right to substitute their work to someone else?
- Does the worker provide their own equipment?
- What is the degree of financial risk/ opportunity to profit enjoyed by the worker?
- Is the worker part and parcel of the organisation?
If you require any assistance in reviewing and modifying your engagement practices please do not hesitate to contact us.