Contractors' Questions: Can a lack of control save me from IR35?

Contractor’s Question: What about long-term engagements under IR35 and how can the IR35 risk-factor of such lengthy engagements be offset? I ask because I’ve been with client ‘x,’through my own limited company, for a much longer time than most other contractors/freelancers I speak to elsewhere.

More positively for IR35, there’s almost no control/oversight of me and my work and I’m completely in charge of what I do. Despite the presence of a bossy freelancer in an unrelated role, I am left to get on with it.

Also seeming in my favour for my status, no expertise like mine exists in the client organisation; what I do for them is not their core business and I’m careful not to step outside of my specific area. I also never work at their premises (in the UK) and have never attended their headquarters (overseas). Taking these details into account, would an IR35 compliance expert say I am likely to be outside or inside IR35?

Expert’s Answer: The length of an engagement is not an indicator of IR35 status. IR35 status is all about the terms and conditions (the written contract and the working practices) of your relationship with the client. However, there have been many cases where HM Revenue & Customs considers that a lengthy engagement somehow changes the relationship, so that the longer you are there the more likely you will become integrated or “part and parcel” of the client’s organisation. If the reality of the relationship does change over time, as in the recent JLJ case, then this does present an IR35 risk.

In your particular case, and from the limited information available, you appear to be OK, in terms of not being caught by IR35:

  • “I’m completely in charge of what I do” – suggests a lack of control (what, where, when and how)
  • “Never work on their premises” – suggests you have your own premises (in business) and implies a lack of control
  • “No expertise like mine exists” – they are paying for specialist skills so very helpful to show a lack of control
  • “What I do for them is not their core business” – not a ‘business-as-usual’ role so helps with the integration issue and not being “part and parcel” of their organisation

Still, to limit your IR35 risk I recommend the following:

  • Make sure your written contract reflects the reality. For example, it should contain positive clauses defining your specialist services together with any milestones/targets, and should state that you need your own premises (and are responsible for all the associated costs), plus it should state a lack of control over what, where, when and how you provide the services. Also, consider that a strong substitution clause would be possible (on the basis that no one may actually know who is doing the work at your premises), as would the right to use your own assistants.
  • Now is the time to put the “bossy freelancer” straight. You could do this by getting the client to confirm the reality of the relationship by completing and signing a “confirmation of arrangements” letter or document. This is even more important if you report to this “bossy” person as he/she is likely to be the person that HMRC will seek information from.  Remember too that this person may consider themselves to be inside IR35 so may be unsympathetic to your IR35 position.
  • Always check your contracts at each renewal and extension to make sure they contain the clauses that reflect the reality. If client representatives change over time, get new confirmation of arrangement documents signed by the appropriate person. It would also be helpful to note any differences between the client’s treatment of contractors and employees especially from a working from home perspective. Finally, maintain the boundaries of what is a business-to-business relationship at all times.

The expert was Kate Cottrell, co-founder of Bauer & Cottrell, an employment status specialist.

Friday 6th January 2012