Your planning begins before you set foot through the client’s door. Look at your contract. Does it contain a genuine substitution clause? Being able to provide the client with a suitable substitute is a clear pointer away from you being an employee and keeps you outside IR35.
Use your company name throughout the contract and in any other correspondence. If your contract names you personally, this could invalidate your substitution clause and points towards you being an employee. Think about the wording of your substitution clause and the amount of control it gives to your client. For example, do they have the final say on any substitute provided? Does it support the HMRC mantra of “supervision, direction and control”.
The next consideration is a clear description of the tasks that you are engaged to perform. It is so easy for extra tasks to be added to your original workload, but remember that the Inland Revenue will be looking for evidence of ‘mutuality of obligation’ – where your client is obliged to offer you work and you are obliged to take it and this is a very strong indicator that you are an employee. As the project progresses and you become familiar with the rest of the team your attention can slip, but stay alert and ensure that any additional work is included in another contract or an addendum to the original contract.
Where possible, avoid any reference to place of work and hours of work. As an independent you are free to set your own working hours. Again, this falls under “control”. As an independent consultant, you are required to complete a set piece of work within a given timeframe, but you can choose when and where you complete the project. Common sense does come into play though, and if you need to be on a client site at certain times to gain access to certain members of staff or use specific equipment or systems this does not automatically imply that you are an employee and outside IR35.
“Taking holidays” also falls under the area of control over an employee. If you wish to take leave, write to your client and advise them of the days that you anticipate not being available. Completing leave request forms indicates you are an employee.
Does the contract prevent you working for another client? If your client insists in the contract that you cannot work for other clients at the same time, this suggests that you are not truly in business on your own account. If you have the opportunity to work for more than one client at a time, take it, as this is a very good indicator of your IR35 status.
Much of the advice around maintaining your status as an independent contractor comes down to your behaviour on a client site. Acting like a visitor and not a member of staff has to become a way of life: Use the visitor’s car park, if needed, and sign in as a visitor would. Do not use staff facilities such as a canteen, nursery, or subsidised gym. Always avoid becoming “part and parcel” of the organisation. Some advisors even insist that contractors avoid using “staff entrances”,although this may be going a bit too far. Whenever possible, use your own equipment on site. Security often means that this isn't possible but if your client prefers you to use their email signature on your project correspondence, make sure at least it identifies you clearly as a contractor.
Training and Expenses: As an independent contractor with a business-to-business ‘contract for services’ with your client, your contractor limited company must pay for all of your own training and development. Make sure your client invoices you for any training you undertake.
If you are subject to an IR35 enquiry, HMRC will be scrutinising your projects for signs of supervision, direction and control: HMRC define these as follows:
- Supervision is someone overseeing a person doing work, to ensure that person is doing the work correctly and to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.
- Direction is someone making a person do is/her work in a certain way by providing them with instructions, guidance, or advice. Someone providing direction will often co-ordinate the work.
- Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.
It is wise to start a Compliance File at the beginning of every new contract. Add:
• A signed confirmation of arrangements letter with the client
• Proof that your own equipment has been used for the project, by, for example, taking a laptop to the client’s site and sending emails showing it is being used there
• Evidence that you have the right to work away from the client’s site, by getting the project manager to let you do some of the work from home, and ensuring that an email record shows this is taking place
• A paper trail confirming the right of substitution, which is a very important proof of being outside IR35, and send the client or the agent emails about this. If there is a reply, that may prove extremely useful.
• Maintain a list of suitably qualified people who could genuinely step in to your role. If you have the opportunity to provide a substitute during the contract, all the better.
• Proof that you have paid your own expenses. Not just receipts, but also any requests for materials needed from the client, emails asking you to pay expenses and so on.
• At the end of each contract, or renewal period, store all these records in a dated file in an easy to retrieve location in the event of an investigation.
Finally, given the large amount of grey areas over IR35, it is probably wise to investigate IR35 insurance. These policies general include contract reviews, assistance with HMRC enquiries and cover you for penalties and liabilities if you are caught by IR35 legislation.