Contractors need to pay close attention to their working practices and cannot simply rely on contract paperwork to avoid IR35 risk after another contract was overridden in the latest significant employment status tribunal of Chris Gascoigne vs Addison Lee.
It is a stern reminder that if you fail to match your working practices to your contract then you are at serious risk of being caught by IR35, resulting in paying out thousands of pounds more in tax. Judge Joanna Wade ruled that former courier Chris Gascoigne was a worker for Addison Lee even though the courier’s written contract stated that he was an ‘independent contractor’.
In her assessment, Judge Wade applied the lessons learned from Autoclenz v Belcher, the landmark case showing that ‘sham’ contracts cannot be used to create a business-to-business relationship and that such contracts can be entirely disregarded putting the primary focus on the actual working relationship.
However, savvy contractors can use the Autoclenz ruling to their advantage, particularly in cases where the agency refuses to make any requested changes to the contract, and instead rely on the working conditions as their main defence for being outside IR35.
But, HMRC is likely to pay more attention to bad contracts than good ones, and a badly drafted contract is more likely to result in a protracted HMRC investigation. If contractors are forced to accept terms to secure contracts then it points towards an inequality of bargaining power, and the ‘Autoclenz defence’ can be used to put aside the contract and focus instead on the working conditions.
Jude Wade also pointed to Addison Lee’s recruitment campaign where the courier company invites couriers “to join our growing fleet” offering couriers guidance and directions upon “joining” the company. Such working implies control and can complicate any IR35 defence. Contractors must be careful when the wording in contract advertisements are more akin to ongoing employment roles as opposed to project based work.
Dave Chaplin is CEO and founder of ContractorCalculator, an online portal that provides free expert advice so freelancers, contractors and the self-employed. Here are his tips on staying outside IR35 as a contractor in your own right:
Do not allow yourself to be told how to work
If you allow your client to instruct you in detail on how to carry out your work, this implies control and is a huge threat to your IR35 status. Your client should be agreeing project deliverables with you, and then just leaving you to get on with it.
Do not be named in your contract as the sole provider of a service
Being obliged to provide the services personally is one of the biggest pointers to being caught by IR35. Any engagement should be between the client or agency and your company, not you personally. You can be named in the contract as being one of the personnel who will provide the services, but it should not state that only you can provide those services and no-one else.
Do not agree to work on anything that crops up
If you agree to take on work which is outside the scope of your contract this makes you what one judge referred to as a ‘tail-end Charlie’ and is a strong pointer to being controlled by the client. If your contract is role-based, and not project based, perhaps where you have a job title, then you are likely to be providing skills and then agreeing to work on whatever assignments the client gives you. This is how employees work, not genuine contractors. Genuine contractors are project based.
Likewise, do not let your client move you around onto different projects or work areas that were not originally outlined when you agreed to work for them. You need to be providing an agreed set of skills for a specific project.
Do not agree to long termination notice clauses
Including a long termination clause in a contract can be a big IR35 risk, because it can imply an obligation by the client to provide you with work, and an obligation by you to complete it – something called ‘mutuality of obligation’ or MOO for short. If the project is cancelled or finished and the client has to provide work after giving notice for say 4 weeks then this demonstrates that MOO is present which will hamper your IR35 status. Ideally you want to have zero notice, and no obligation for work to be provided.
Do not specify minimum hours in your contract
Including a minimum number of hours each week is a firm indicator that mutuality of obligation is present. Having ‘core hours’ or a set working pattern is something that employees do. Genuine contractors do what is required and have discretion as to how they work those hours. Rather than minimum hours, use ‘estimated hours per week required to deliver the services’, but do not make it a contractual obligation.
Do not have the hallmarks of an employee
Being named on the client’s organisation list, having an employee like badge with your name on it, or attending meetings that are about employee matters are all signs that you have become part and parcel of your client’s organisation and are therefore at risk of IR35. It’s a secondary factor, but can swing a judgement. Be careful.
Do not take part in an appraisal
Accepting a performance appraisal by a client will provide HMRC with plenty of ammunition to claim IR35 should apply, as it suggests that you are not in business on your own account. Conducting performance appraisals of your client’s personnel will also yield the same results.
Do not get paid for time off sick or holidays
Taking on a contract entitling you to holiday pay or sick pay is a very strong indicator that you are firmly inside IR35. Employees get these benefits. Genuine contractors don’t.
Do not start contracting with a former employer the day after leaving work
Going contracting for a former employer immediately after leaving your job with them is highly risky, placing you firmly on the taxman’s radar. HMRC will assume you left your job on Friday to become a contractor on Monday only to benefit from tax savings, and not because you are a genuine contractor.
Dave Chaplin is CEO and founder of ContractorCalculator