Complicated working environments: Ask Andy Answers
While Andy Vessey was taking a well-earned break over Christmas, Kingsbridge’s other resident IR35 expert, Matt Tyler, was standing in. Normally, our Ask Andy questions and answers are pretty short and sharp, but this question was not entirely straightforward and so Matt devoted an entire Ask Andy to it.
However, it’s a question that comes up time and again around how likely a contractor is to be inside or outside IR35, so as we move closer to the reforms, let’s address it in full.
I currently work for a US Consultancy via a statement of work. The actual end clients are multiple and the hours I work and invoice are very variable depending on projects and required work at the time. Am I likely to be outside IR35 or is it very much dependent on the ability of me to substitute if necessary?
While on the surface of it, this is a fairly straightforward question, there are a couple of considerations here that need to be examined first.
Under the new legislation arriving in April 2021, it is medium or large end clients who are responsible for determining the status of their contract work-force, and they (or the fee payer) will bear the liability for an incorrect decision. There are two exceptions to this:
1. If the end client is a small company as defined by the Companies Act 2006 (bear in mind this categorisation takes into account any larger group the client may be part of), the contractor will continue to be responsible for determining their own status and also carry liability for any incorrect status.
2. If the end client is a foreign company with no link to the UK whatsoever, the contractor will once again be responsible for determining status and carrying the liability. If the end client has any form of UK link (directly, or via a group company) then the foreign end client will need to consider IR35.
If you are working via a statement of work style arrangement to an American client, the first question that needs to be looked at is whether or not it is a genuinely outsourced piece of work. If you engage directly with the ultimate end client or have interaction with that ultimate end client, there is a risk that you are not engaged in a genuinely outsourced piece of work, and that ultimate end client could be responsible for determining status if that ultimate end client has UK links.
If the work is genuinely outsourced, then the next question becomes whether or not the consultancy engaging your services to operate the statement of works contracts fulfils both of the above points. If the consultancy is medium or large and has UK ties either directly or via a group company, then they determine your status after April 2021. If, however, they do not fulfil both of the points, it will fall back to you to determine your status.
With that all out of the way, on to the main part of your question.
Sadly, IR35 status is not quite that simple. Working for multiple clients and invoicing for your hours are both positive indicators for IR35, but IR35 status is a much more complex beast then just those pointers. IR35 determinations are usually made on three key status tests, and a range of minor status tests that are set down in case law (historic precedence from previous tax tribunals). It’s a case of weighing up all the factors and determining whether, on the balance, the engagement looks like one of employment or one of a genuine contractor.
The key status tests are:
– Personal Service – Is there a requirement for the personal services of a specific individual? If you are looking to be outside of IR35, you’d be wanting to evidence a genuine right to substitute here, for example, or the ability to subcontract work. .
– Control – To what degree is the contractor controlled (either directly, or hypothetically) by the client? Is the contractor left to determine how the work is done, or are they micromanaged/have little freedom in decision-making?
– Mutuality of Obligations – Is there any expectation of continuous work to be offered, or accepted by the contractor? This would include rolling, ongoing contracts, whether or not the engagement has a specific start/end date, ability to terminate etc.
Minor status tests include (but are not limited to):
– Financial Risk – Being required to correct defective work, or carry business insurances are indicators of financial risk.
– Provision of own equipment – Generally neutral, as this will be set aside if there’s a genuinely good reason why a contractor cannot supply their own equipment. If, however, you provide your own laptop/materials for services, this will count in your favour (albeit not significantly).
– Part and parcel – Are you, as the contractor, integrated with the client’s business more than you should be? A contractor should be an arm’s length resource – if you are seen by client employees (or the clients of your clients) as being part of your client’s business, this will impact poorly on your status.
How to Ask Andy
If you have your own IR35 question to put to expert Andy Vessey (and remember, the reforms are less than three months away now) then you can do so using our handy form.
If you, or your end client, are still desperately trying to get to grips with the key tests to determine your own IR35 status then there’s no need to panic as help is at hand. The Kingsbridge Status Tool offers a unique hybrid status review for just £50 plus VAT. Designed by Andy himself, the system can place you inside or outside IR35 based on your answers to some comprehensive questions. And if your case is borderline, it will be passed to one of our (human) IR35 experts to manually review. Once you have your result, you also get a full report detailing how we arrived at our decision. It couldn’t be easier.