Contractors’ Questions: How can my role be inside IR35 if I’m in business on my own account?

Contractor’s Question: Most contract opportunities I see tend to be inside IR35.

But how can the engager possibly determine the status of the assignment without speaking to the company which is going to be offering the services, and executing the contract?

If my business has multiple clients; operates our own payroll; even has our own offices, would the engager take this detail into account and likely reclassify the contract as outside?

Expert’s Answer: End-clients determining roles as inside IR35 has absolutely been a feature of the first two years of the private sector off-payroll working changes of April 6th 2021.

Undoing the conservative

Yet, two factors appear to be changing this conservative approach.

Firstly, it has become expensive to engage contractors on higher day rates to compensate for the tax effects of an ‘inside’ IR35 engagement. Secondly, end-clients wanting the best contractor talent, need to be offering ‘outside’ engagements – but only where it is correct to do so.

And this is the key. Based on HMRC’s guidance (at ESM10014) the expectation is that end-clients must take “reasonable care” in their decision-making, which means reviewing the contractual documentation and assessing the working practices for every engagement.

We agree that taking into account the contractor’s understanding of the engagement and acknowledging any in-business factors augments matters, to help ensure that the client issues a robust Status Determination Statement (SDS).

Outside IR35 signposts

Nevertheless, IR35 must be considered on an engagement-by-engagement basis and so having multiple clients might only have an impact if the client accepts that it doesn’t have first call on your company’s services – which would indicate that the end-client has no control over how you perform the services, and should be acknowledged in the SDS and potentially result in an ‘outside’ determination.

Similarly, if a business is sending multiple consultants (I note your reference to ‘operating our own payroll’), in order to complete a project, then you would expect the SDS to deny a requirement for personal service and therefore categorise it as an ‘outside’ engagement.

Three factors matter most

However, a contractor’s in-business factors are not the fundamental issues which will influence the decision. Instead, the key factors are personal service, control, and mutuality of obligations (handed down from the Ready Mixed Concrete case). It is an understanding of these three factors which will form the basis of the role’s status at the point which the client advertises its availability. Only then would specific ‘in-business’ factors be considered.

Regarding the second part of your question, once the end-client has found someone to undertake the role, there may be very specific factors which might change their opinion.

Yet be aware that even freelancers such as Lorraine Kelly, Adrian Chiles, Stuart Barnes and Kay Adams (although the latter’s Athol House case is still under appeal by HMRC), who won their tribunal hearings based on in-business arguments are not the typical everyday engagements we associate with off-payroll working, and so they hold limited weight.

The way both the revised legislation and the liability for non-compliance under Chapter 10 are framed, it forces end-clients to consider the status fundamentals. This is undoubtedly correct, even if in the short-term end-clients take a conservative view.

Final thought

Nevertheless, we believe that over time and with better engagement with the revised IR35 legislation, you will find more engagements being determined as outside IR35.

The expert was Georgina Hiles, senior tax consultant at Markel.

Tuesday 28th Feb 2023
Profile picture for user Georgina Hiles

Written by Georgina Hiles

After joining Markel Tax in 2002, Georgina studied law and developed her skills before making the cross-over to the tax profession in 2013. Georgina specialises in the legal and technical intricacies of the interaction between employment status, IR35 and agency legislation within industries targeted by HMRC. Georgina advises and defends clients against HMRC challenges including representing clients who opt to use HMRC’s Alternative Dispute Resolution process.

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