Contractors’ Questions: Does regularly invoicing the client for broadband affect my IR35 status?

Contractor’s Question: Does regular monthly invoicing by my limited company to my client of broadband fees, relevant materials which inform the product we supply, and software synonymous with the type of work involved, have any bearing on IR35 status?

Put another way, will the invoicing of these three likely help the client decide me inside IR35, should the client become a non-small company, and therefore affected by the April 6th status rules? The client did originally advertise all expenses incurred in the supply of services as costs that it shall bear – and this was confirmed upon engagement, but that was previously and the client appears to be reconsidering.

Expert’s Answer: Generally speaking, contractors are usually expected to bear the cost of providing their services to clients.

It’s rare -- albeit not unheard of -- that a contractor will recharge expenses such as broadband, telephone calls, webinars and software directly to their customers.

Whatever it takes

The thinking here is that genuine contractors -- working outside IR35 -- tend to absorb the cost of whatever it takes to deliver the service agreed. They are perceived as businesses providing a service to another business after all.

That’s not to say these expenses incurred should not be considered in the fees charged to the client, and they would usually be factored into the day rate. What’s more, paying for them yourself (as the supplier) is usually seen as part of ‘being in business on your own account,’ which can be important in demonstrating outside IR35 status.

Suprise, stranger things, and showing you belong outside

So in answer to your question ('Will expensing certain items to your client have a bearing on your IR35 status?') in isolation, I would be surprised if submitting expenses to your client will significantly change your overall IR35 position.

Stranger things have happened though, and following IR35 reform, end-client businesses can be wary about engaging contractors outside IR35 if the engagement has any indication that it belongs inside the rules.

Paying for things needed to deliver your services from your own pocket -- or more accurately, your company’s pocket -- begins to show that you belong outside IR35.

There are more crucual factors  (at least three major ones)

But in reality, there are arguably more crucial factors to consider regarding IR35 -- factors that I imagine would play a more telling role in deciding your true IR35 status. This is worth stressing to your client if they begin quibbling expenses.

The three key IR35 status tests are Control, Personal Service and Mutuality of Obligation (MOO). These three tend to have a much bigger say on whether a contract belongs inside or outside the scope of the Intermediaries legislation.

Final recommendations

Focus on these three factors and ensure that both your written contract and working practices pass each of the checks so to reflect an outside IR35 engagement. In doing so, and proving this to your client, the fact that your engager reimburses you for certain expenses shouldn’t -- in theory -- have a major impact on your position.

The expert was Seb Maley, chief executive of status advisory Qdos.

Thursday 15th Jul 2021
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Written by Seb Maley

Seb Maley is an IR35 expert, regularly commenting in national media on the topic. He is CEO of Qdos Contractor, a leading IR35 advisor and IR35 insurance company.
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