Contractors’ Questions: If a client only wants me, am I caught by IR35?

Contractor’s Question:  I’m concerned that my new client has expressed a need for just my personal services on site; where does this leave me with regard to IR35?

Expert’s Answer:  When dealing with contractors, a client will only have contact with the individual representative and perhaps a recruiter. Therefore, it is not surprising that a client may perceive a contractor’s representative as offering a specific and unique skill-set. A client may understandably have difficulty in accepting that the services may be undertaken by an alternative representative when it has only dealt with the contractor’s representative.

However, if the reality of the engagement is that the contractor is a legitimate business undertaking providing a commercial service and, crucially, the client considers itself a client of the contractor rather than a temporary employer then, notwithstanding the issue of personal service, IR35 is less likely to apply. As the IR35 legislation will apply if there is an obligation upon the contractor to personally perform the services, it is vital that the client understands and accepts from the outset that the contractor is providing a commercial service and it may be necessary to substitute the representative from time to time. This must be reflected in the terms. Unfortunately, if the client’s actual requirement is for an individual to work for them for a fixed period of time then IR35 is much more likely to apply.

Recent case law, such as the Supreme Court judgment in Autoclenz, confirm that the reality of the engagement takes precedence over the written terms of the contract so it makes sense for a contractor to establish the client’s true requirement prior to starting an engagement and to seek impartial legal advice regarding the contract and working practices. It should be remembered that substitution is not a ‘silver bullet’ and even if substitution takes place during an engagement HM Revenue & Customs may decide that IR35 should apply to the remainder of the engagement if the working practices do not support an interpretation of self-employment.

The expert was Martyn Valentine of The Law Place Limited

Thursday 24th November 2011