Contractor's guide to working outside IR35 – Part Two
Having looked at educating your client or agent; including what to do if you’ve got a strong ‘inside IR35’ or weak ‘outside IR35’ result, and at making your contract as IR35-friendly as possible, let’s now turn to cementing your working practices outside the legislation.
And for those new to contracting, by ‘legislation’ I mean either the Intermediaries legislation of 2000, or its latest incarnation in the public sector -- the off-payroll rules of April 2017, writes Orange Genie’s operations manager Helen Christopher.
Contractors are often able to vocalise why they feel they were outside IR35 during a particular placement, and they even know which person at the end-client organisation could validate their opinion. But years later, when HMRC comes to investigate you under IR35, that person is often no longer available.
Consider preparing and agreeing a “confirmation of arrangement” or “statement of understanding” document, with your end-client and in particular your client representative, especially if a different person from the one who hired you.
These statements must set out how you intend to work and how you will be viewed and treated by the end-client while on assignment. The CoA document should provide a detailed overview of your working practices including the precise nature of the services you provide. It should also give written, explicit confirmation that you cannot be asked to do anything that is not stated in your contract.
Working Practices and Appearances
Arguing your IR35 status with an end-client or HMRC will require plenty of evidence on your part to support your opinion. Start to build an ‘IR35 compliance file.’ This file should support not only the IR35-friendly contract terms we have already highlighted (in part one), but also the day-to-day practices and relationship with your end-client. Think of this file as an extension of the CoA document; it is evidence from ‘on the ground’ proving that what’s in the CoA – the statements asserting your outside IR35 status -- has been stuck to and carried out.
Managing your workload, tasks or project briefs
- Vary your hours instead of mirroring the standard week of your client’s employees. Keep your own timesheets to evidence their times and yours.
- Work from home or your own office whenever possible -- evidence this with emails to confirm your plan to work from home, copies of diary notes and demonstrate your location on your timesheets. These are all useful indications of a lack of Control.
- When taking time off, politely inform your end-client of your days away rather than request your absence. Do not use your end-client’s holiday form or HR processes, but rather keep copies of your emails informing your client. Gaps in timesheets can also evidence your absence and corroborate the fact that you did not receive holiday pay or sick pay for periods where you were not providing services.
- Manage your time efficiently. Sounds obvious but in relation to IR35 it means, for example, if an IT system slippage means you cannot continue with work, retain evidence that you have left site to undertake other activities, ideally commercial. In this IT outage scenario, you did not merely remain on-site and undertake other available tasks, as an employee would have to do.
- Work for more than one client. Demonstrating that you are ‘in business on your own account’ is easier if you have evidence of multiple, concurrent assignments.
- Use your own equipment. Use your own computer and equipment as much as possible. Retain receipts to show that you bought the equipment for the business and try to show that it was used on a specific project e.g. emailing the end-client to say you will be using your own device due to the need for some specific software.
- Organise and be responsible for your own training and development. You should be able to demonstrate your investment in your own professional development and a link to the future profitability of your business. You should not be attending end-client training sessions, paid for or not. Do not take part in your client’s appraisal process or take responsibility for any members of the end-client’s staff.
- Rectify defective work at no client cost. Employees rectify work during work hours and suffer no financial consequences. As a contractor, you will need to put the work right in your own time and at your own cost. Collect evidence to show that you worked additional hours for the purposes of repair/rectifying -- without charging for it. Send an email evidencing the error, the action taken and the fact that no charge has been made by your company.
- Make sure you are covered by Professional Indemnity Insurance. Employees don’t need to worry about taking out insurance for poor work or advice; they are covered by their employer’s policy. As an independent contractor, you should make sure you have complete cover in your limited company’s name.
Badges of Business
It is necessary to demonstrate you are a genuine business to keep IR35 at bay. Insurance is one such ‘badge of business.’ But while your appearance of being a commercial business is very important, it must be more than surface deep -- evidence is vital.
- Set up, launch and maintain a website
Establish a website for your company and its services. Keep it up-to-date and publish regular blogs on topics related to your industry, services or skills. Websites should be part of your marketing machine as a contractor business, as they let you and your enterprise be found by agencies and potential clients. Using your site to monitor competitor’s websites – as contractors often like to do -- is something worth keeping a record of, as is carrying out a regular online search for work, contract or tendering opportunities. Both of these are good indicators of being ‘in business on your own account.’
- Defeat ‘part and parcel’ with small but significant details
When introduced to your clients’ clients, make sure you are identified as an independent contractor. You don’t want to fall into the trap of being seen as being ‘part and parcel’ of your end client’s organisation.
Similarly, you should have your own email address that includes your company name (more prominently than any mention of the client name where possible), and you should be copied-in on all emails related to your project. If your end client insists on you having an email address provided by them for the length of the contract, then ensure that you are identified in the email signature as an independent member of the project team.
For the same reasons, make sure your business cards have your company name on them and not that of your end-client. If your end-client requires you to carry one of their business cards, then it should be clear on the card that you are an independent contractor.
Also make sure that if you appear in the internal phone directory, your company should be named as well as yourself. On a related note, if required to wear an ID badge for client Health & Safety purposes, while in the office make sure that the card states your name, your company and the fact that you are a contractor.
Another tried and tested way of keeping ‘part and parcel’ at bay is ensuring you don’t benefit from any employee perks. So if you are invited to the Christmas party and want to attend, make sure you pay for your own ticket -- employees won’t. If you use the staff canteen, ensure you have evidence to show you did not receive the employee discount and don’t ask for special permission to use the office gym. With all these employee-aimed perks, it’s much better for IR35 purposes that you can show you were excluded as it differentiates you from an employee.
When all else fails
Regardless of which of the IR35 status factors you’d like to nullify, whether it’s Part and Parcel, Control or another, adopting an evidence-gathering approach to reduce its applicability will mean you are prepared for the worst. If you make collecting the suggested evidence a habitual part of all of your relationships with end-clients, it will become automatic. If in the public sector, it will also mean you’re able to quickly provide reassurance to your end-client that your contract is outside IR35. You’re equally likely to banish sleepless nights if you do the suggested evidence-gathering and you’re in the private sector.
However, if despite your best efforts your public sector end-client refuses to view your contract as outside IR35, and insists that you be taxed as an employee, there are still some actions you can take.
- Seek alternative options. You could look for work in the private sector, where currently you are responsible for determining your own IR35 status. A layered threat of you leaving may be enough for your public sector end-client to reconsider.
- Negotiate a higher rate. If you are deemed inside IR35, you will be taking home between 20% and 30% less money if you continue to use your PSC or use a PAYE umbrella company. Letting the client know that you won’t take the contract without a rate increase may lead them to reconsider your evidence (or bump up your pay).
- Highlight to your end-client that if you are effectively paying employment taxes you expect to be given additional rights -- they are not likely to agree to this and may again reconsider their original stance. As some organisations have shown, end-user opinions on IR35 status are not always set in stone!