Contractors' Questions: Can I avoid IR35 by moving sector?

Contractor’s Question: Does IR35 potentially apply to a worker regardless of what sector they operate in? If I get bored of IT contracting, I may start up as a Physiotherapist and work through a limited company, which I’m doing now. But if I did, I’d likely be supplying just a single clinic so would IR35 be a risk? I don’t think VAT applies to Physios and I’m rather hoping that IR35 doesn’t either.

Expert’s Answer: Unfortunately, IR35 does not recognise boundaries between different occupations and working as a physiotherapist through a limited company will be subject to the same IR35 rules as for an IT worker.

In fact, health professionals in general have come under additional scrutiny by HM Revenue & Customs since around the start of 2013, as have all limited company contractors working in the National Health Service sectors, so there is a heightened risk of HMRC deciding to look at your limited company arrangement.

That is not to say that you cannot legitimately work as a physiotherapist, or other heath sector professional without being subject to the IR35 rules, but it means that you must still be able to demonstrate that you have the usual freedoms, flexibility and risks of a self-employed person in business on their own account.

To have any chance of your assignment falling outside of IR35 you should hold a fully accredited qualification before the assignment commences and, if your contract is obtained via an agency, you should be opted out of the Employment Business 2003 Conduct Regulations.

As a matter of interest, if you are not a qualified and registered health professional you would not be exempt from VAT unless your work was directly supervised within a hospital or other state regulated institution, in which case your assignment would most likely be subject to IR35 in any case.

Assuming you are, or become, suitably qualified, there are certain steps you can take to reduce the likelihood of IR35 applying including:

  • treating an agreed number of patients (even if only through one clinic)
  • charging a fixed fee per patient rather than by the hour (if possible)
  • ensuring that the contract has a defined end-date
  • ensuring that you are not directly supervised by a senior professional
  • undertaking and paying for your own further training, including CPD
  • having different working arrangements to an employed physiotherapist working in the clinic
  • taking steps to look for other clients once the existing contract ceases or build up an additional private client base
  • investing in the necessary equipment. Physiotherapy equipment can be expensive and wide-ranging and the more equipment you provide (as opposed to the clinic) the lower the risk of IR35 applying. In the event that the clinic provides all the equipment, it might be sensible to agree on a fee for you renting the equipment from them
  • ensuring you take out Professional Indemnity (PI) insurance

It is also worth remembering that the IR35 rules were strengthened recently to include specific reference to “office holders” which may include those taking on an interim engagement while the usual employed professional is on leave, so this type of assignment is also more likely to be regarded as falling within IR35.

To summarise:

  • Health care workers operating through a limited company arrangement come under the same IR35 rules as other workers
  • The same steps should be taken to improve the chances of an assignment being outside of IR35 (Including having a professional IR35 review)
  • Unqualified workers are much more likely to be regarded as within IR35
  • Acting as an interim health care worker for someone holding a specific role will increase the likelihood of IR35 applying.

The expert was employment status specialist John Hill, founder of IR35 advisory John Hill & Associates.

Friday 7th November 2014