For contractors and agencies alike, IR35 legislation can be tricky to wrap your head around at the best of times, but when incorrect statements are made and shared across the industry, knowing how to remain compliant with the legislation has made that much more difficult.
To ensure that those we work with have a clear and accurate understanding, we are debunking some of the most common myths when it comes to IR35 legislation.
1. A contractor is not within IR35 if they are carrying out more than one contract
Whilst it may seem like an obvious assumption that a contractor working on multiple contracts at once would automatically be considered outside of IR35, status must be assessed on a contract by contract basis as the requirements and business relationships outlined in each may differ.
2. Set hours means that a contractor is inside IR35
There are any number of reasons why a client may insist upon a contractor working set hours. Be it for health and safety purposes or for security, having set hours is not solely an indication of ‘control’ and therefore should not deem a contractor inside of IR35.
3. Contractors inside of IR35 cannot claim expenses
The fact that a PSC is within IR35 does not affect their ability to claim back expenses, in the same way as any other limited company would. The only difference is that deemed payment calculations will consider only expenses allowable as an employee.
4. If other contractors engaged with a business are outside of IR35, so will any other contractors that begin a contract
Being reliant on the IR35 status of other contractors also working with a client is very risky, in large partly due to the fact that they are likely to have different contracts and backgrounds and therefore may have a different IR35 status. Furthermore, a court will not consider the IR35 status of other contractors.
5. If a client insists their own equipment should be used, the contractor is within IR35
In the same respect as set hours, a client may stipulate that their own equipment must be used on a project, but this does not necessarily indicate that a contractor will be within IR35. Furthermore, a contractor that does not use their own equipment may do so for security or practical reasons that would again, not put them within IR35.
6. A recruitment agency has supplied an IR35 friendly contract, therefore the contractor is compliantly working outside of IR35
Unless a contract reflects the reality of the individual contractor’s situation, it is unlikely that it can be used to evidence the status of a contractor should HMRC investigate. Making blanket decisions when it comes to determining IR35 status is not an acceptable practice by an agency and will ultimately impact said agency further down the line.
7. Contractors working with a client for over two years will be deemed inside IR35
Time spent on site should not necessarily impact upon IR35 status, as long as an agency or contractor can prove their IR35 status should it be questioned by HMRC (i.e. control, MOO or substitution).
8. If a contractor doesn’t receive holiday pay or sick pay, they cannot be classed as an employee
Whilst typically receiving holiday pay and sick pay does go hand in hand with employment, not receiving these does not automatically place a contractor outside of IR35.
9. If a contract refers to a manager or line manager, then the contractor will be within IR35
Should the manager or line manager exercise significant control over the contractor during the project, then they are likely to fall within IR35. However, it is often the case that a line manager or project co-ordinator will be appointed to simply keep track of a project’s progress, which would not fall within IR35.
10. Only contractors working in the public sector need to worry about IR35
All PSCs are subject to IR35 status, however currently those working in the private sector are able to determine their own status, whilst those in the public sector have their status determined by the end client or agency. This may soon change, as it is possible that IR35 reforms may extend into the private sector as early as April 2019.
Still unsure about IR35? The expert team here at Exchequer Solutions are working alongside contractors and agencies to educate them on the legislation and support them throughout the decision-making process. Get in touch with us today to discuss.