Contractors’ Questions: Will working on two projects at one client break April’s IR35 rules?

Contractor’s Question: I have a part-time contract with Company X to assist in processing payroll for 4 days a month. The hourly rate is very low, given my qualifications and experience. This has been recognised by Company X, who would like me to undertake some projects in order to improve efficiency.

The problem is the line manager is very controlling and is probably being paid a rate lower than what I will be offered on the project. To minimise politics in Company X, it has been suggested that I invoice the company for the individual projects as they are completed. This way; the controlling manager does not find out my hourly rate for the project. Will I or Company X be breaking IR35 rules?

Expert’s Answer: Firstly, it might be helpful for you to know that we will be providing practical advice on the April 6th off-payroll rules, tailored to contractors’ individual circumstances, in a webinar for ContractorUK readers very soon. In fact, it’s on Monday March 16th at 1300. Places are limited but you can use the link in this paragraph to sign-up.

As to your question, the implication is that you -- the contractor -- will continue to offer services for 4 days a month, assisting in the processing of payroll and that this work will be paid on an hourly rate. In addition, the contractor is being asked to undertake some individual project work, to improve end-client efficiencies and that will be paid for on project completion. This work will attract a different rate to the processing work. In terms of IR35 implications, we need to break down these two elements -- they will be contracted for under separate agreements.

‘Business as usual role’

Firstly, let’s address the hourly paid payroll processing role. This appears to be a ‘business as usual’ role for the end-client -- a function that they require in order to run their business. Your question also implies that you, the contractor, will be “assisting,” so we can only assume that the others – who run the payroll -- are employed.

Much rhetoric is made of contracts being ‘outside IR35’ where the time commitment is minimal (in this case 4 days a month), or conversely to a contract being ‘inside IR35’ where a low hourly rate is paid. But what we need to consider here is “what” work is being undertaken and “how” the contractor is completing that work.

The ‘how,’ the ‘what’ (cont.)

For this dual-element, is the contractor under the control of the end client? Without further information as to the working practices at the end-client, I would suggest that this work is likely to be more controlled. Presumably, payroll is run following a particular end-client defined process, it will need to be appropriately approved and it is very likely that the contractor will be told what software to use and procedures to follow. The ability to demonstrate any autonomy or expertise will be minimal. Timeframes for undertaking the work will be set by the end-client’s payment dates and while this may be work that is carried out only once a month, it is not a discreet project and forms part of an ongoing end-client requirement for which the contractor is regularly re-engaged.

So there is an implied expectation that the contractor will be required 4 days a month on an ongoing basis. It is highly likely this element of the work would be found to be ‘inside IR35.’

By contrast, contracts for discreet project work present a different scenario. If you, the contractor, are to be engaged to deliver a project with clearly defined deliverables and milestones, you would have the ability to design, implement and manage the project. In this scenario, you are far more likely to be found ‘outside IR35.’

Your other ‘outside IR35’ signposts

The fact that this project will attract a ‘fixed fee’ to be paid on completion also demonstrates the ‘financial risk’ that the contractor takes. Your question implies that each project would be engaged separately, so we can only assume that at the completion of each, the contract terminates and a new contract is required for the next assignment. We assume there is no ongoing obligation or expectation of project work.

Next, consider that while it may be unusual to have a qualified and experienced member of staff undertaking both a routine role and fulfilling individual projects, the two are not mutually exclusive. In terms of “ breaking the IR35” rules, you -- the contractor -- just need to be certain that the two requirements are contracted for separately.

Challenges, changes and compliance

Remember, IR35 has to be applied on an assignment-by-assignment basis using “reasonable care.” It is perfectly possible to be ‘inside IR35’ for one assignment while being ‘outside IR35’ for another. The only challenge then is accounting for the various sources of income!

To reassure you a little, your scenario is not unique. As contractors and end-clients aim to navigate their way through IR35’s many changes from April 2020, many unusual situations are cropping up. With guidance still changing and the final legislation not yet published, it’s to be expected that individual contractors will need help understanding their position -- whether their working arrangements are typical or atypical.

As mentioned previously, if you are looking for further support, Orange Genie Compliance will be hosting a post-Budget 2020 webinar on Monday March 16th at 1pm. We will be looking at both what the chancellor’s Treasury has to say tomorrow with regard to IR35, and assessing all other Budgetary measures and announcement for their potential impact on contractors. You can sign-up for the IR35-focussed webinar here.

The expert was Helen Christopher, operations director at Orange Genie.