IR35 reform countdown: what are the minor status tests??
Written by Zara Butt, IR35 Status Specialist
The private sector IR35 reform was cemented to go ahead in April 2021 after MPs voted against another delay to the new rules on Wednesday evening. Contractors, recruiters, and end clients operating in the private sector should not delay in getting ready for the reform, and education around what constitutes an inside or outside determination is the first place to start.
When determining employment status for IR35, we usually focus on the three main key status tests: Right to Substitution, Control, and Mutuality of Obligation. However, there appears to be a gap in knowledge when it comes to minor status tests – which can often swing a borderline case.
These minor status tests can be something of a minefield, so we’ve briefly outlined them below along with some useful FAQs.
Is the contractor in business on their own account?
It’s important to evidence that the contractor is operating via a limited company and are therefore genuinely self-employed when aiming for an outside-IR35 determination. This ensures that, when providing a service, they are not identified as a ‘disguised’ employee of the end client.
Q. How can I show I am a genuine business?
A. Having a company website, stationery, and offices are some ways to prove that a business is genuine. These provisions will go a long way in demonstrating that they are an independent contractor.
Is there a Statement of Intention?
This refers to the agreement of both the end client and the contractor entering into a contract for services.
Q. What does a statement of intention look like?
A. A clause somewhere that reads along the lines of “The contract is a Contract for Services. Nothing in the contract shall create an employer/employee relationship between Service provider and the Client.”
How long is the contract engagement?
As a service provider, the contractor should be providing a service on a temporary, project basis as opposed to performing an ongoing role. This means the contract should have a clear end date.
Q. Can my contract be extended?
A. Yes, contracts can be extended on the provision that the extension is agreed and signed by both parties. This extension should also have a clear end date.
Is the contractor integrated into the client’s company?
If a contractor is operating via their own limited company and are genuinely self-employed, they should remain external to the end client. This means not partaking in employee perks, not accepting equipment like laptops and phone, and avoiding sticking to the company’s regular working hours.
Q. Can I use the end client’s email domain?
A. Yes, while providing the service to the client or communicating with the end client’s customers you can use the email domain allocated to you. Once the service is completed or the contract has been terminated, the contractor should communicate via their own limited company’s email domain.
Is the contractor exclusive to one client?
The service provider (i.e. the contractor) should be able to provide services to numerous end clients simultaneously. There should never be an exclusivity clause in a contract – that’s the remit of permanent employment.
Q. Can I provide services to more than one client at a time?
A. Yes, a contractor should be able to provide services to a number of clients at any one time.
Termination of the contract
Termination of a contract refers to ending the contract before the contractual end date for either the end client or the contractor.
Q. Can I terminate the contract?
A. Yes, you should be free to terminate the contract whenever you want, wherever you sit in the supply chain.
Q. What should the notice period be?
A. A notice period of 4 weeks’ or less is acceptable.
Does the contractor partake in employee benefits?
Much like company integration, genuine contractors are external to the end client’s business and therefore are not entitled to employee benefits.
Q. Can I take holidays?
A. Yes, but a contractor should not be paid holiday pay. As a service provider, they should only be paid for time spent on the service.
Q. Can I attend the work Christmas party?
A. Social events with work are for employees of a business so a service provider may not attend them. However, there are exceptions. If you are invited to attend, you should cover your own expenses such as food and drinks.
Q. Can I park in the end client’s company car park?
A. Yes, contractors are not expected to trek miles on foot. However, they should be classed as a visitor to the client so should park in the designated visitor spaces if available. Having an allocated car park space could indicate integration into the end clients’ company.
Q. Can I receive training from the end client?
A. Contractors should not receive training from the end client. If training is required, they should cover the expenses of training.
Is there financial risk present?
Financial risk refers to a potential loss in income through making a mistake when providing services. This is important for distinguishing a genuine contractor as it demonstrates risk assessment when entering into a contract. It also shows that, as a self-employed worker, they are fully responsible for their work. Financial risk includes provisions like expenses and equipment.
Q. Do I charge the client for fixing the defect?
A. No, a contractor should not claim any additional cost to the client as you are liable for the mistake.
Does the contractor supply their own equipment?
Does the contractor supply their own working equipment, or does the client supply them upon starting the contract? Equipment refers to the tools a service provider uses in order to provide a service; genuine contractors should supply their own equipment wherever it’s to be reasonably expected. For example, it would be okay for a locum vet to use a client’s x-ray machine, but an IT contractor should supply their own laptop.
Q. Can I use the end client’s equipment for a service?
A. A contractor should use their own equipment such as laptops, tools etc in a service. However, if they are required to use a client’s equipment due to security provisions, this is acceptable from an IR35 perspective.
Does the contractor claim expenses?
Expenses refer to additional payment outside of the fee for providing the service. Contractors can claim expenses from their own limited company, but they shouldn’t be claiming expenses from their client.
Q. Can I claim expenses?
A. A contractor should not be claiming expenses from the client as this could allude to an employee benefit. Any additional expenses incurred should be covered by them as a financial risk.
How Kingsbridge help you get ready for the IR35 reform
It’s crucial that all points of the supply chain understand their IR35 position with every contract taken on or filled. Getting a professional IR35 employment status determination is pivotal to making sure you know where you stand, while IR35 investigation insurance is also a worthy investment and can provide a lifeline should you fall foul of an HMRC enquiry.
A good policy will include an IR35 status determination, as well as cover for the unpaid tax debts, interest, fines, and legal fees, and will flex with the reform roll out to cover the contractor, recruiter, and end client. Our IR35 Protect product offers the above in one comprehensive package.
For more information on how Kingsbridge can assist your business in preparing for off-payroll 2021, or for a demo of our market-leading status determination tool built specifically for recruiters and end clients, please email IR35@kingsbridge.co.uk