Contractors' Questions: Can I avoid IR35 entirely?
Contractor's Question: In terms of the implications under the IR35 rules, I'm interested in the distinction between a company that provides services (such as a web design shop on the high street) and being a contractor, earning through an IT contractor limited company. If I was classed as a web design business, where I would provide fixed price projects to clients from my own premises, then I believe IR35 would not be a consideration.
At present, I think I am somewhere between the two models – I do work as a web design company for a number of clients, but then I also work as a contractor sometimes for, say, a three-month project on the client premises. Would this set-up and these practices normally be enough, in terms of IR35 avoidance, to be outside IR35 completely, meaning I would never have to worry about the details of contracts at each place I might work?
Expert's Answer: Fixed-price contracts undertaken from your own premises do demonstrate significant financial risk and are likely to show an outside-IR35 position. This way of working also puts the three important employment status factors of substitution, control and mutuality of obligation in your favour on the basis that all three are within your control.
Problems arise because IR35 is concerned with "relevant engagements" and 3-month contracts on client premises are potentially caught by IR35.
Therefore it is unfortunately necessary to consider each and every contract and extension or renewal. The key point is that it is not the person's IR35 status that is out or inside the scope of IR35 but the engagement, so you could have ten engagements in a year and five could be inside IR35 and five outside IR35.
There is no occupation that would be automatically outside IR35. It all comes down to the terms and conditions of your relationship with the client or your working practices. For example, you could provide web design services to a client with no in-house expertise so you are left to merely deliver the services. Or the client could have a whole team of its own employees dedicated to the web design project, in which case you would just be an additional resource. Again, depending on the terms and conditions either scenario could be inside or outside IR35.
In summary, there is no legal definition of a contractor or a freelancer, a temporary worker, a consultant or indeed an employee and consequently no distinction between
them for IR35 purposes. Hopefully providing such a definition will be a first step for the Office of Tax Simplification as part of the review of IR35.
The expert was Kate Cottrell, former Inland Revenue tax inspector and co-founder of IR35 advisory Bauer & Cottrell.