IR35: Financial risk and payment

Financial risk and payment are one of the main differences between employment and self-employment.

As explained earlier in Hall v. Lorimer, Lorimer had to take work on a first come first served basis. Obviously, there were times he was unable to accept work even though he did occasionally use a substitute. In the period of just over 4 years Lorimer worked for 800 days (out of approximately 1,050 days). In addition, he was also registered for Value Added Tax (VAT) and had some Clients who didn't pay for a few months.

In the case of McMenamin v. Diggles, Diggles agreed to a "Full Clerking Service" at his own expense in return for 8.3% of the barrister's gross earnings. Clearly there is a financial risk as his earnings are based on a percentage of the barristers income.

There could be a risk that the substitute could cost more than the costs the Contractor receives. Conversely, in the Hall v. Lorimer case, when Lorimer used a substitute he made a profit, as his fee from the Client was more than he paid the substitute.

Article kindly supplied by Ray McMahon


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Useful links: IR35 substitution  IR35 control  IR35 mutuality of obligation