Protecting Your IR35 Status

Contractors working on projects inside IR35 are taxed significantly higher than those operating outside the rules. What’s more, they don’t receive employment rights in return for paying similar taxes to an employee. It’s one of the main reasons why independent professionals prefer to take on work that isn’t caught by IR35.

After changes to IR35 were introduced in 2017, public sector companies have since been in charge of deciding if a contractor belongs inside or outside the rules. From April 2021, this will also be the case in the private sector, much to contractors’ dismay.

Many independent professionals fear they will be wrongly placed inside IR35 by clients that lack experience when administering the rules. Therefore, it’s become increasingly important that contractors are confident in their IR35 status.

If you know exactly where you stand, then you will be in a better position to contribute to an IR35 decision or, if necessary, challenge and overturn an inaccurate one. If you’re incorrectly placed inside IR35, it’s important you work this out quickly to make sure you aren’t paying too much tax.

But given that IR35 is a confusing tax with many grey areas, how can you be sure of your status? And more importantly, what can you do to build a strong case to show your client or recruitment agency that your contract belongs outside the rules?

To help safeguard your IR35 status, we’ve pulled together six straightforward steps that you can take:

Confirm your working arrangement

Confirmation of Arrangements (CoA) is a letter or document that details the specific reasons a contract sits outside IR35. It’s signed by the end-client and is seen as one of the best ways to shut down an HMRC enquiry because it should show an accurate reflection of your actual working practices.

The document can highlight why you do not fall under the control of your client, that Mutuality of Obligation (MoO) doesn’t exist and that you have the right to provide a Substitute. Anything else that points towards you being self-employed is also worth including; from demonstrating a financial risk to having more than one client.

It can be difficult to obtain a CoA from your client, because before long in the private sector, it will be the engager (either a client or a recruitment agency) that carries the liability for incorrect IR35 decisions, as in the public sector. However, it’s considered important in the event of an investigation because it shows all parties are in agreement of status and that reasonable care has been taken to administer the rules.

Become an expert on IR35

We know that IR35 can be difficult to understand, which is why we have a whole host of IR35-related resources for you below:

Visit our IR35 hub

Have your contract reviewed

A second opinion matters. Contractors are advised to have their contract professionally reviewed by an independent expert, who can offer unbiased advice.

With IR35 reform in the private sector approaching, contract reviews are becoming increasingly important. You can use it to support any argument for belonging outside the rules and present it to a client should you hope to overturn an incorrect IR35 decision you think they might have made.

Discover more about the IR35 contract review service which we offer at Caroola.

Find out more about our IR35 review service

Compile evidence

Think about collecting together any other evidence that shows you are genuinely self-employed. Should you need to convince your client or HMRC that you belong outside IR35, keeping records of things that demonstrate you are a legitimate business owner and not an employee could be key.

From business insurance documents and receipts proving you take on financial risk, to having an office address and your own company website and stationery, try and gather anything that builds a powerful argument for being self-employed.

Before long, contractors will not have the luxury of administering their own IR35 status, irrespective of whether they work in the public or the private sectors. Therefore, the need to be confident in your status and to be able to show your engager and HMRC that you belong outside IR35 is becoming more important by the day.

Need to chat to an IR35 specialist?

We have been providing expert IR35 advice to contractors since the legislation was introduced. Talk to us

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