Very soon, contracting within medium and large businesses in the private sector will change significantly with the introduction of IR35 reforms.
For agencies and end clients, IR35 will have likely never been a factor in their business processes when working with contractors, as the responsibility for determining their status was down to the contractors themselves. In an effort to tackle false self-employment, HMRC are now moving this responsibility (not to mention liability) to the agencies or end hirer.
Over the past few years, the team at Exchequer have been busy supporting our agency partners in preparing for these reforms, which is certain to impact how they operate moving forward. Of course, an IR35 status must be accurate, so how do you accurately identify a contractor’s status? We take a look below:
Mutuality of obligation (or MOO) refers to whether a client is obligated to provide work for a contactor following the conclusion of a contract, and whether the contract is obliged to accept this work. If mutuality of obligation exists, then the contractor will be deemed within IR35 and therefore subject to the necessary tax and NI deductions.
To be truly self-employed means a financial risk for a PSC contractor. If a contractor is provided with insurance, equipment and training to fulfil a contract, and the contractor is paid no matter the outcome, then they would be deemed within IR35. On the other hand, if a contractor is responsible for the purchase of any goods or services to enable them to carry out the work stipulated, and they risk reduced or unpaid work as a result of incomplete or unsatisfactory work, they will be outside of IR35.
Of course, there should be very clear distinctions between employees of an end client and contractors carrying out work for an end client. Some examples of this could be if a contractor was involved in regular staff meetings, received discounts or perks, as an employee would. This would subsequently indicate that the contractor was a ‘disguised employee’ and therefore inside IR35.
A genuine contractor should have the ability to provide a substitute in the event that they are unable to continue the work stipulated within a contract. If an end client refuses a substitution with the same skillset and qualifications as the contractor, then they are likely to be deemed inside of IR35.
The amount of control an end client has over how work is carried out is a key indicator of IR35 status. Of course, the client can outline the outcome of a contractor, but should they want to control how the contractor works towards that outcome, then they will likely be inside IR35.
Want to learn more about IR35 reforms? Speak to our team today!