The best way to ensure your contracts are outside of IR35 is to ensure they accurately reflect the working practices you follow with your clients. HMRC will ‘look beyond’ your contact and examine the working practices you follow if they decide to query your IR35 status.
Long-term contractors and freelancers who work through a limited company will need to ensure their contracts accurately reflect the working practices followed in their client/contractor relationship. Contracts will need to be checked for each project on renewal and must provide clear evidence to support your status as a self-employed professional.
HMRC investigations are not confined to the detail contained in an individual contract and will ‘look beyond’ the contract to examine the working practices you follow with your clients. If HMRC decides the relationship is of an employment nature, they will seek to recover all income tax and National Insurance contributions due over the period of the contract affected.
The three main principles to decide IR35 status
Determining whether IR35 applies to your contract is a complex matter. There are three key principles that will determine your IR35 status:
Supervision, Direction, and Control: What degree of supervision, direction and control does your client have over what, how, when and where you complete your contract and day to day work?
Substitution: Are you required to carry out the work yourself, or you can you send someone in your place?
Mutuality of obligation: Is your client obliged to offer you work, and are you obliged to accept it?
These three principles remain the same regardless of whether you work in the private or public sector. You’ll need to demonstrate that they don’t apply to your contract and working practices to avoid being affected by IR35. If your contract with an end client is a contract for services, rather than a contract of employment, it’ll usually fall outside the scope of IR35. For example, if you can send another person (‘substitute’) to perform the services agreed in your contract, there’s no obligation of personal service and IR35 shouldn’t apply.
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