Eight ways to help stop outside IR35 turning into inside IR35

Received a Status Determination Statement stating the unenviable ‘inside IR35?’

Fortunately, you now know steps to take as a contractor if an SDS does come back saying the assignment is caught by the Off-Payroll Working rules.

But you’d be even more fortunate if such a determination didn’t come about in the first place. And there are ways to help achieve that -- eight in fact.

So here’s eight ways to practice what might be called OPW or IR35 due diligence, many of which can help to quickly shut down IR35 status disputes, writes Charlie Hemsworth, a director at Bauer & Cottrell.

1. Consider what advice your clients/agencies may be receiving

Many organisations undergo IR35 training, engage legal or tax professionals, or outsource their off-payroll compliance to IR35 specialists to assist them with meeting their obligations.

Contractors, try to get under the hood of that IR35 advice, or familiarise yourself with the advising party’s stance on the OPW rules.

Knowing what type of advice and support your end-clients receives (if any), can offer insight into the reliability of their decision-making and the factors they consider.

Are they being told to assess roles more conservatively to minimise HMRC risks? Is their advising party keen on automated IR35 status testing tools, or one specific tool like CEST?

Might the end-user have a history of relying on particular contractual clauses to shift responsibilities?

While there will likely be a limit to what you can detect here, once you’ve likely reached that point, familiarise yourself with IR35 best-practices, so you can prepare as well as possible for discussions or negotiations about your status. Similalrly, as it’s the government’s tool, familiarise yourself with CEST and its guidance, with a view to gauging which factors are likely to be considered problematic and helpful to your outside IR35 position.  

2. Detect and fight contractual indemnities

As touched upon, look out for indemnities in your contracts which could allow the client or agency to attempt to pass on tax/NIC liabilities to your limited company in the event of a dispute. 

Ask for those indemnities to be removed, or reworded to exclude liabilities that do not rest with you by law. 

3. Get some independent / expert IR35 advice of your own

Engagers get their own IR35 advice, so isn’t it time you obtained some of your very own?!

Having your contracts and working practices independently reviewed by an expert to confirm the client has made the correct determination – and taken “reasonable care,” can provide valuable evidence to support your ‘outside IR35’ status should you ever need it. Look for an IR35 expert who can also help you ensure your written terms align with, and fully support your determination.  

4. Ensure a reliable determination basis

Double-check the correct party is making the determination, and that it’s based on input from the most relevant client staff. Often we find ‘Jan in HR’ may not have the same understanding of your working practices, as the client representative/employee/line manager who you check in with.

If the client isn't making the determination directly, they should review and approve any determination made by another party, such as the agency or third-party assessor. If you are also providing input into the determination, be honest and transparent.

5. Guard against deviation

Once you’ve agreed the terms and IR35 determination, stick to them.

Deviating from the practices that formed the basis of any outside IR35 decision may undermine it. If circumstances lead to deviations beyond your control, raise your concerns with the client, who may need to carry out a reassessment. 

6. Regularly review or confirm arrangements

If you’ve been on the contract for a while and the client hasn’t already done so, ask them to confirm that the original ‘outside’ determination still applies with each extension you sign. Engagers striving to be compliant with HMRC’s April 2017/201 frameworks should be reassessing longer-term off-payroll workers at least yearly.  

7. Gather and record evidence

Compile evidence supporting your outside IR35 status, such as (potentially) the SDS itself; details of your working arrangements, the contracts, and any relevant emails/ correspondence.  

8. Keep up to date using trustworthy sources

Finally, stay informed about IR35 and any significant changes to the legislation and case law, including changes to the CEST tool and whether such changes could impact upon your original determination. 

Only last month for example, a new question was added onto the HMRC tool and while this sector-related query is optional, another new question could crop up on CEST with the potential to make all the difference to your determination. Case law vigilance is vital too.

Final word 

If you haven’t had to deal with an inside IR35 determination yet, or an outside IR35 determinations which is replaced by an inside IR35 determination, don’t assume you never will. That said, follow these eight steps as part of being proactive in understanding IR35 and managing risk, and they should help you avoid sleepless nights thanks to you maintaining your outside IR35 determination and minimising any wrangles over status.

Thursday 2nd May 2024
Profile picture for user Charlie Hemsworth

Written by Charlie Hemsworth

Charlie Hemsworth has been a tax consultant at leading IR35 and employment status specialists Bauer & Cottrell since 2015, and has over 20 years of experience in the contractor industry. She currently advises contractors, engagers and agencies in all things IR35 / Off-Payroll, ranging from IR35 reviews and assessments, to representing clients in HMRC enquiries.

Printer Friendly, PDF & Email

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required