How to check your IR35 status
As we take tentative steps into 2021, many contractors are focusing their energy on coronavirus and getting through the UK’s third national lockdown. However, in less than three months, the IR35 reforms will be launched and you will no longer be responsible for determining your IR35 status.
Instead, this task will fall to your end client who will issue you with a Status Determination Statement (SDS) and, if you are deemed inside IR35, your fee payer will be liable for the payment of taxes, which will be deducted at source at the same rate as that of an employee.
Many contractors are worried about knee-jerk reactions from risk-averse clients, placing them inside IR35 as a precaution when they should sit outside. This is where you come in, communicating with your clients and educating them so that they make the correct decision when producing your SDS.
For this, you (and they) need to be knowledgeable on how to check your IR35 status so that determinations can be made with confidence. But where to start?
Perform a manual review of the status tests
One of the first things to do is to perform a manual review of your contract and working practices in relation to the three main status tests: Mutuality of Obligation (MOO), control, and right of substitution. This will give you a good overall idea of where you stand and where you might potentially need to change things in order to be found outside IR35.
It’s a good starting point as it will help you to understand what’s being asked of you when you begin to use a status determination tool as well. But what do the tests mean?
Mutuality of Obligation (MOO)
MOO is important in terms of your IR35 status because it has a) been disregarded by HMRC as they do not consider it at all in CEST, and yet b) MOO has been pivotal in tribunal wins for contractors. For MOO to exist in a working arrangement, it must be the case that the client is obliged to offer work and the contractor is obliged to accept it.
So, if a contract ends on a fixed date with no expectation of more work, then MOO does not exist. Equally, if there is an offer of further work, the contractor is free to turn it down.
High profile cases such as that of TV presenter Helen Fospero have hinged on MOO. In Fospero’s case, a line in her contract with ITV stated ‘[they] anticipate requiring the services of the Individual for approximately 20 (twenty) News Presenter Appearances per annum or pro-rata for any incomplete week or month or year of the Term.’ HMRC tried to frame this as a guarantee of work.
However, the judge pointed out that this was simply a hope that they would be able to offer further work, and that Fospero would be under no obligation to accept it if they did.
Control is another one that tribunals are won and lost on. It refers to the amount of control a client has over a contractor’s work. Too much control and it suggests an employer-employee relationship rather than that of contractor and client.
As an employee, your employer can tell you when, where and how to carry out your job, even down to micro-managing what tasks you carry out on any given day. However, as a contractor, you should have control over pretty much everything apart from the brief and the deadline, both of which would be set by your client.
Control is looked at in terms of what’s reasonable within your industry, so exceptions are made for things such as compliance with industry regulations.
Right to substitution
Right to substitution is interesting as it simply has to exist – not necessarily be enacted. It refers to having a clause in your contract that, simply, states you are not delivering a personal service, but can select and send a suitable substitute to carry out the work without deferring to your client.
As you would choose and pay your substitute yourself, it’s a clear marker of being self-employed without you ever actually having to carry it out.
CEST (Check Employment Status for Tax) is HMRC’s free tool which can be accessed via GOV.UK. It asks questions on your working practices and you are required to choose the answers that best match your situation. At the end, it will give you one of three outcomes:
- IR35 does not apply (outside IR35)
- IR35 does apply (inside IR35)
- Unable to make a determination (borderline case)
However, CEST has been criticised for not being comprehensive enough, in part due to its disregard of MOO, so it’s best not to take its results as gospel. That said, it can still be a useful place to start in terms of tools, if only to give you an indication of where you might stand in terms of contract and working practices before looking at something more comprehensive.
Hybrid status determination tool
If you don’t feel as if CEST is giving you accurate answers, you could always try a hybrid status determination tool for a more in-depth look at your situation. Like CEST, a hybrid tool uses automation, but the crucial difference is that borderline results are looked at manually by IR35 experts to give you or your client an accurate status determination.
Kingsbridge’s Status Tool provides just such a service. For £50 plus VAT (or at no charge if you hold IR35 Protect Premium insurance) you get a status determination tool developed by Kingsbridge’s Head of Tax and IR35 expert, Andy Vessey, which takes a full look at your contract and working practices to offer a result alongside a comprehensive report.
If your result is borderline, then your case is passed to one of our in-house IR35 specialists for a manual review. We’re currently the only IR35 solution provider to offer this hybrid tool so to take advantage of it, or to suggest it to your client, visit our site today.