Contractors' Questions: Is IR35 a risk if the client was my employer?

Contractor’s Question: I am currently employed by a company who now want to make me self-employed so that I could work on a commission-only basis. I would be free to work for other companies at the same time. What would my employment status be in relation to IR35? Is it affected by the fact that until now I am employed by them?

Expert’s Answer: Switching directly from employment to self-employment at the same workplace is always going to be fraught with difficulty. IR35 was originally brought in to target so-called ‘Friday to Monday’ contractors, who left as an employee on a Friday only to be re-engaged as a contractor on Monday.

To have any chance of being considered outside IR35, there would need to be clear demarcation between the way you worked as an employee and what you will be doing as a contractor. You would also need to be totally confident of the key employment status criteria; i.e. have a genuine right of substitution, control over your services etc. Note that your client would have to be on-side and understand the situation, as HMRC will be quick to quiz them should there be an enquiry.                                                       

By ‘self employed’ I am assuming you’d be using your own limited company. If, on the other hand, you are intending to work as a sole trader then IR35 itself isn’t an issue. Your status could still be called into question, but the liability would rest with your client.

The expert was Seb Maley, senior tax consultant at Qdos Consulting.

Editor’s Note: Further Reading

Contractors' Questions: Is contracting for my ex-employer inside IR35?

Contractors' Questions: How to freelance for my employer?

Thursday 11th April 2013