15 Top tips to fall out of IR35: Off-Payroll Working Rules
IR35 off-payroll working rules with a wider scope than ever before is all set to enter the business scenario from April 2020. It is assumed that these rules will turn the tide against freelancing business countrywide. In fact, there is a widespread fear that freelancing is taking its last breath. The question here arises is that are these fears real or for namesake?
IR35 is an autonomy game, in other words, HRMC acts you as sovereign as possible in your contractual relationship with your client.
This blog will throw light upon the right ways to ensure that the freelancers/ contractors and businesses do not fall prey to complex IR35 contractor rules unwarrantedly.
We would like to begin this blog with the bottom line that “IR35 depends on the role and not the individual”. In other words, if you fell inside IR35 for one contract you may or may not fall inside it for another contract and vice versa. Hence, every assignment you take up in the shoes of a contractor needs to be evaluated independently to find out whether it lies outside or inside IR35.
1. Maintain your own office
Maintaining an office is a piece of solid evidence that indicates that you are working on your own account. A small corner in your household in which you work from is sufficed for being called your "office space" and help you to fall out of the net of IR35 rules.
2. Accept projects from other clients
At any given time you should have at least one project other than that of the client so as to fall outside off-payroll working rules. The contract of service should not have any clause that stops you from working for other clients. Legal advice should be sought before preparing or signing up with a contract to avoid being restricted by any client in any way. The only exceptional case where restriction to work for any other client shall be justified is where such a client is your existing client’s competitor.
3. Inform your client about the leave instead of taking permission from them
It is a professional courtesy to inform the client about your holiday or sick leaves so that your absence can be planned and any disruption can be tackled. In no way, should you seek permission from your client to take leaves. Furthermore, you should not accept payment in respect of the days you didn’t work for your client because such acceptance would show that you receive benefits like any other employee.
4. Autonomy to refuse to carry out work not mentioned in the contract
You should carry out only that work for which you’ve been hired and avoid performing any work that is beyond the contractual boundaries. If you wish to carry out such work, then either enter into a new contract or get the existing contract revised. Otherwise, you might be at risk of projecting yourself as ‘disguisedly employed’.
5. Autonomy to carry out work on your own terms
The client dictating the work becomes an obvious indicator that the contract falls inside IR35. To avoid this to happen, you should grab complete autonomy as to how the task is to be conducted, how the work shall be proceeded with and what will be the line of action. The employer should have ‘no say’ in the manner you carry out the work as long as the work is being carried out without breaching any of the clauses of the contract and the deadlines are properly met.
6. Ensure the contract with the client is in the name of your PSC (Personal Service Company)
There should not be any contract of service entered into by you and the client. Wait! That does not mean that there should not be a contract in place at all. Rather the contract of service should actually be between your Personal Service Company and the client. The contract should bear the name of the PSC as the contracting party with the client and not your name.
7. Differential treatment from regular employees
When people are employed in an entity, they work in specific working conditions that are pre-stated, they are entitled to various employment benefits. You should be able to show that the conditions, benefits, etc. you are entitled to receive differ from other employees.
Furthermore, it is the employer’s duty to provide its employees with work and in return, the employee is obligated to perform in accordance with the work assigned to them. This is called "Mutuality of Obligation". Ensure there isn’t any mutuality of obligation in your relationship with the client. MoO is a classic example that helps in deciding the applicability of IR35.
8. Project-based assignments over periodic ones
When you work on a project-based business, the fee amount is fixed, the duration is fixed but you have the complete autonomy to work on your own terms as long as deadlines are met. This gives an impression to HMRC that you are not disguisedly employed but instead working on your own account. While being engaged for a fixed period might give an indication that you are working as an employee for the said period until someone permanent is employed at your place.
9. Using your own equipment
You should stick to using your own equipment like laptop, tools, etc. while carrying out the work you’ve contracted for with the client. Client equipment should not be used unless there are safety and security reasons which bound you to use the client’s equipment only.
10. Invest in your business
Another factor that can strongly support the fact that you fall outside IR35 is to invest in your own business. You can buy equipment or software used to carry out your work, trade literature, professional membership, getting professional indemnity insurance, etc. from funds out of your PSC’s bank account and get them billed in its name. This will immensely help in proving that you work on your own account.
11. Client accepts substitution
This is a strong factor in determining whether engagement will fall in the ambit of IR35 or not. The client should not restrict you to allow any equally qualified substitute to work on your behalf. This will help you to earn profits by transferring the work to someone who does the same task at a cheaper cost. Other benefits include freeing time to engage with other clients.
The best way could be to include a clause in the contract that you shall have a right of substitution. This will make it crystal clear that you are not employed since you are not bound to personally carry out the work for the client.
12. Spend money on brushing up your skills
Your PSC should pay any training programs or activities that you undergo to hone your own skills/knowledge. If the client pays for it then it gives a clear-cut indication that you are part and parcel of the client’s entity and simply disguisedly employed. It is advisable that the payment receipts of such training or activities are in the name of your personal service company and payment is actually made by it.
13. Personal service company is not named after you
It is recommended that your personal service company should not be named after you. It should be more of ‘business-like’ to suggest that you are a separate entity than your company.
14. Have stationery and marketing materials customised in your PSCs name
This is one of the major parameters that can convince HMRC that you are running a business on your own account. You can have your PSC listed in directories, on various websites, post advertisements about the services your company provides. Also, ensure that the bill books, business cards, advertisement pamphlets, etc. carry the name of your PSC instead of your own name.
15. Hello visitor!
When you enter the client’s premise ensure that you’ve got your name entered into the register for visitors. In fact, make sure you park your vehicle in a parking slot for visitors instead of staff parking, no matter how inconvenient it proves. Also, avoid using any services that are provided by the company specifically to the employees e.g. gym, library, etc. (😄, 😄)
Say Hi to IR35
Before we wrap up the blog it’s time to ask the question again “Is freelancing actually taking its last breath?” The answer is freelancing business would not be affected if freelancers are cautious about the terms and conditions of the contracts, they take up.