Candidate guidance to IR35:
Off-Payroll Reform in the Private Sector

HMRC have developed a tool in order to check the employment status for tax (CEST) which can be used by the client in order to determine the role. Other factors to take into consideration are:

• Substitution — a genuine right of substitution has long been deemed to be a very important factor when demonstrating that a contractor’s assignment falls “outside IR35”. For a substitution to be considered valid, the right to supply a substitute must be a genuine one. This means that the client must agree to it in practice and be satisfied that the substitute has the skills and if necessary pass any security processes. The contractor must pay for the substitute, and it should be an unfettered right.
• Control and direction — a contractor must be able to demonstrate a certain amount of autonomy in the way they undertake a project where professional services are provided. Both the working practices and written contract must show that the client has no influence over how the contractor performs his/her services provided that they meet client-specific targets or project completion dates. Control factors that may point towards an “inside IR35” status include if they are being supervised, have break time or staff benefits such as sick pay or holiday pay.
• Financial risk — the contractor may take on a level of financial risk in undertaking the engagement. Contractors who don't take any financial risk, for example don’t have to rectify poor quality services at their own cost, are more likely to be “deemed employees” for tax purposes. Contractors taking financial risk would also be expected to maintain appropriate insurances.
• Mutuality obligation — this refers to the obligation of an employer to provide work and pay for it, together with the obligation of the employee to personally do the work. According to HMRC, having a contract agreeing to provide services, mutuality is established but most experts consider the legal picture to be more complex. It is likely there will be more clarity on this in the coming months factoring into it notice periods, termination agreements, provision of equipment, continuity of the engagement, absence procedures and even if the contractor has become “part and parcel” of the organisation.

HMRC produced a technical note in 2017, which contained several illustrative scenarios. Below are two obvious examples:

Off-payroll working rules apply – “Inside IR35”    

Nic works through his own PSC as an IT product designer at a large blue-chip PLC. He will:

• Be working in their IT development centre.
• Not be required to supply his own equipment.
• Work under the direction of a senior manager.
• Flexible working hours are available, but Nic will need to agree time off with his Manager. 

Off-payroll working rules do not apply – “Outside IR35”  

Jasmine is a Website Designer, contracted to a medium private company through a PSC to design and build a website. She will: 

• Deliver the website to an agreed standard by the agreed date.
• Visit the company’s offices for meetings, but mainly work from own office.
• Provide her own equipment needed to do the job in hand.
• Employ her own staff to help deliver the contract if she needs to. 
• Cover her own costs and expenses.
• She is not filling a role, but providing a whole service, the fee for which covers her equipment, time and staff costs (should she want/need to engage others to assist on the project).

Disagreement in the determination of the role

If you don’t agree with the client’s assessment of the role, we will work with you and the client to reach a resolution. During this time, we must continue to apply the rules in line with their original determination and the client must respond to a request to review the status determination statement within 45 days. The final decision however will be with the client.

If a role is found to be inside IR35 by the client then you will not be able to use your PSC for the assignment. 

In order to ensure that the appropriate taxes are deducted and paid to HMRC, we recommend that contractors sign up to an Umbrella company. The way an umbrella company works is pretty simple. You as the contractor become an employee of the umbrella company. This means that Sellick Partnership will pay the umbrella company and the umbrella company deducts the necessary PAYE and national insurance contributions and pays your salary. 

An umbrella company will employ you under a contract of employment so whether you carry out one assignment or 100 you will be employed under the same contract, giving you a record of continuous employment, which helps with mortgage or loan applications. It also helps to ensure that you're on the correct tax code whilst providing you with just one pension pot. You also get access to statutory benefits such as maternity and sick pay but with the added benefit of an inclusive insurance package.

This guidance document is intended for use by Sellick Partnership candidates only. The facts, information, and opinions contained herein are correct to the best of Sellick Partnership’s knowledge as at time of publication. This document is intended to provide general information only and does not constitute advice. It is not an exhaustive and complete reference document on this subject. Sellick Partnership can take no responsibility or liability for the use of or reliance on the information contained within this document or for any decisions or the consequences of any such decisions.