When clients blur your IR35 status
The soon to be held staff Christmas party is not the only thing that end-users throw which unsettles independent, self-employed IT contractors, keen to keep away from IR35.
In fact, thanks to input from its readers, ContractorUK has identified ten other actions clients take which IT contractors regard as unhelpful in their bid to maintain an outside-IR35 position.
To use IR35 parlance, each ‘scenario’ has been evaluated as ‘low, medium or high risk,’ where five stars (*****) represents the most detriment to your self-employed status and one star (*) represents the least.
The risk evaluations and analysis for each scenario have been exclusively provided to CUK by John Hill, of IR35 advisory John Hill & Associates.
Scenario 1: ‘Fill out this extra timesheet’
A client asking the contractor to complete a timesheet designed to detail projects worked on. This timesheet is in addition to a timesheet the contractor completes for the recruitment agency, assuming an agency is used.
IR35 Risk: *
The completion of a client timesheet in itself is not a negative factor for an outside-IR35 position. On the contrary, it could be useful if it serves to highlight that the contractor is working on different and/or specific projects, and is not simply being allocated work as and when required.
Scenario 2: ‘Do you really have to work at those times?’
A client asking the contractor to work certain hours.
For example, when in the client’s office, the contractor may start at 0700-0800 and finish work to go home at 1500-1600, perhaps in order to miss traffic or because the contractor feels he/she works best earlier in the day. When at home, the contractor tends to start work early and finish late, depending on the workload. However when at home or in the office, the client raises issue with the hours worked by the contractor, especially where the client fails to operate ‘flexitime’ for its permanent employees.
IR35 Risk: **
It rather depends on what is ultimately agreed between the parties. If the client requires the contractor to work defined hours - simply to fit in with the organisation - then this could be seen as an element of control, so would not be recommended for the contractor intending to be outside IR35. However, if the services can be better performed by working at the same time as the permanent staff, then this would be less of an issue and this should be made clear in any discussions/agreement on time worked.
Scenario 3: ‘Work in the office, where we can keep an eye on you’
A client refusing to let the contractor work from the contractor’s better-equipped home-based office, not because of security reasons but merely, as one contractor was told, because the client representative "wants to keep an eye on you."
IR35 Risk: ***
If the client requires the contractor to work from the client’s offices just to “keep an eye” on him/her, this could be construed as regular monitoring and/or supervision of the contractor and would be considered as an element of control by the engager. However, if the contractor has to work from the client’s offices because there is a need for the work to be performed there, then this should not, by itself, be seen as an indicator of control.
Scenario 4: ‘Other work we need doing has cropped up; you could probably do it’
A client expects the contractor – who may be in between his contracted project work – to turn his/her hand to tasks for the client’s business that are related to the contractor’s skill-set, but which the contractor is not a specialist in and for which there are specialists for. The contractor tries to avoid having to do these so-called ‘Business As Usual’ tasks, but the client may use the contractor’s unavoidable downtime from his/her contracted project work, to justify why the contractor should do the task, which the client deems to be similar.
IR35 Risk: ****
Undertaking work in between projects, just to keep you engaged, is not recommended if you’re a contractor seeking to keep IR35 at bay. For example, a contractor who works only on outdoor projects should not expect to be given ancillary work indoors simply because the weather is inclement, as this would indicate a high degree of mutuality. The whole point of being a contractor outside of IR35 is that you have a financial risk that an employee would not have. If other work is undertaken, it should be clear that it is a separate project that requires your company’s services.
Scenario 5: ‘Team-building day tomorrow and company meeting now; see you at both’
A client insisting that the contractor attends the client company’s meeting. Similarly, the client expects the contractor to attend team-building days or activities.
IR35 Risk: **
If the event is confined to members of the client’s organisation, then I would decline politely. It could be seen as an indicator that the contractor is regarded as ‘part and parcel’ of the organisation, especially if the contractor also takes part in staff meetings and receives staff magazines or manuals (see the following scenario)
Scenario 6: ‘Take this handbook; you’ll need it at the induction’
A client provides the contractor with inductions and/or employee handbooks.
IR35 Risk: **
Employee handbooks are not appropriate to external contractors. You should only be offered an induction necessary to understand the work required together with any Health & Safety requirements. Other instructions, i.e. signing on at the site, name badges etc, should be the same as those relating to any external visitor.
Scenario 7: ‘Here’s the paperwork for our NDA and ISO; we all sign them’
The client makes the contractor sign documents relating to NDA, ISO and other policies. This paperwork, typically meant for the client’s internal staff and employees, is in addition to documents the contractor signs with the recruiter, assuming a recruiter is involved.
IR35 Risk: ***
The signing of any document that specifically relates to an employee could be prejudicial to the IR35 status of an independent contractor. It depends on precisely what the additional document is demanding. An NDA, for example, could be seen as proper business governance so would not be an issue, but contractors should definitely avoid signing an employee template and only sign a similar contractor-based agreement. If the client insists on the same form being used, then it should be signed by the contractor “on behalf of the limited company.”
Scenario 8: ‘No need to confirm arrangements, we know who is who & who does what’
A client fails to provide a Confirmation of Arrangements (CoA) document, which the contractor has requested. The contractor made the request because the client representative has changed, and such a confirmation of arrangements document is considered prudent for IR35 purposes where the person representing the client, and liaising with the contractor, has moved on and been replaced.
IR35 Risk: ***
Not having a Confirmation of Arrangements document by itself, will not affect a contractor’s status but it will be very helpful should there be an IR35 enquiry, as the CoA document sets out the features of the arrangement without HMRC having recourse to meeting with the client. In the circumstances outlined, it should be to the client’s benefit to have such an agreement in place. Incidentally, the HMRC inspector should not call for documents or information from the client without asking the contractor’s permission first, or obtaining approval from a tax tribunal.
Scenario 9: ‘Make sure you use our internal email address featuring our firm’s name’
A client insists that the contractor always uses a client company email address for all of the contractor’s outgoing and incoming email, such as email@example.com The inbox has been set up solely for the contractor to use but, other than the name on the email address, it is identical to those given to, and used by, the client company’s internal employees.
IR35 Risk: *
In the real world, the use of a common server for emails cannot often be avoided. However, in any directory of email addresses, and any other internal directory, the individual should be identified as an external contractor and not have a client-specific job title. Additional guidance on email signatures for IR35 purposes is available on CUK.
Scenario 10: ‘Stick around; we’ll find you something else to do’
A client expects a contractor to ‘stick around’ even though there is no work to get on with, or certainly none of their contracted work left to do. The client tries to convince the contractor to agree by saying they are still willing to pay the contractor’s rate while they sort out tasks they deem to be appropriate for the contractor to do. The contractor is told to ‘stick around’ – often for days on end - even when the contracted work is complete and even when the contractor offers to finish the contract early without pay. The result can see the contractor earning, but not working.
IR35 Risk: ****
This is a similar problem to that raised in Scenario 4. Being ‘kept on’ for several weeks simply to find work for you is an indicator of mutuality of obligation, and is not a feature of self-employment. The Dragonfly case was decided on just this basis. If there is an unavoidable but short delay in developing or rolling out a new project, this would be less of an issue.
Scenario 11: ‘Christmas bash next week, you’re coming, right?’
A client representative invites the contractor to attend the client company’s Christmas party. The party is hailed as an opportunity for the client to say ‘thank you’ to the workforce for its efforts throughout the year.
IR35 Risk: **
The potential IR35 implications of attending a client’s Christmas party are often asked about at this time of year. Ultimately, it rather depends on the type of event itself. If non-employees attend the party, such as spouses or industry contacts, then there should be little or no risk. But assuming that this is an employee-only event, then ideally you, as a contractor, should find an excuse not to go. However, on its own, attending the client’s annual party should not be a fundamental factor in determining status. It might be if other factors also indicated that you were being treated as one of the employees, as explained in this piece’s conclusion, below.
Apart from those scenarios outlined where work is simply being found and routinely allocated to the contractor (see Scenarios 4 and 10), which should be avoided if you are arguing that the hypothetical relationship is a self-employed one (N.B. I don’t keep my plumber on once he has fixed the leaking tap), the other scenarios will not, individually, lead to a conclusion that the relationship is an employment one. The key factors are still those of:
However, where the fundamental features of self-employment are not present, or there are balancing factors on either side of the argument, some of these less important factors are likely to be considered and weighed, and if all or most of the scenarios described above related to an individual contractor, the argument against IR35 applying will not be as robust .
Clearly your relationship with the client is paramount and the client may not always care whether you are an agency worker or a worker with a limited company, so may not always take kindly to requests to assist in IR35 matters.
However, the client should see your relationship as the same as any outside supplier and it may well be in both parties’ interest to have certain matters agreed up-front. Perhaps doing this informally may be the best approach. It really does depend on your relationship with the client but if the client has a number of contractors working in a particular way, the last thing the client will want is to be bombarded with numerous requests for details from the taxman embarking on several contractor reviews.