Introduction
There is often no single reason why a contract fails IR35 and is normally a
combination of reasons. One has to “stand back and consider the whole picture”
to arrive at the decision.
This article discusses the main ir35 criteria and the reasons your contract might fail IR35.
Reason 1: Background/Previous Ruling
The Revenue has previously reviewed the client’s records and advised that all
future contractors should be treated as employees.
Reason 2: Contract
The contract is not genuine and has been copied from someone else or is a “do
it yourself IR35 Contract”. These can easily be spotted by the Revenue and
disregarded as not being “a Live Contract”.
Reason 3: Mutuality of Obligation
The client expects further work from you after the current contract. With
regular work and “rolling Contracts” the Revenue will argue that you are an
employee of the client. More on the mutuality of Obligation.
Reason 4: Control
Clauses in the contract show that you have to regularly report to the client.
The more control is mentioned in the contract, the more the Revenue will
believe you are employed and not self-employed.
Reason 5: Substitution
The substitution clause, if present, is not genuine and has merely been added
to “protect the contractor”. You have not discussed possible substitution with
the substitute.
Reason 6: Financial Risk
The contract does not show a price for the work and an approximate date for
completion. It simply states you will work a set number of hours per week for
an hourly rate.
Reason 7: Equipment
You only use the client’s equipment, indicating a lack of financial risk. [This
isn’t one of the main points but worth considering.]
Reason 8: Part and Parcel of the Organisation
Your contract stipulates you have your own office, report to a manager and have
access to all the client facilities. You have become integrated into the
client’s business.
Reason 9: Intention of the Parties
The contract does not stipulate that the agreement is between a self-employed
contractor and the client.
Conclusion
These are the main ir35 criteria that could result in your contract failing IR35.
Remember there is no single reason, or a points system used for failing. HMRC considers the ‘whole picture’.
It is recommended you seek professional advice when reviewing your own
circumstances and essential in disputes with HMRC.
Updated Wednesday, September 13, 2006, [Originally published Wednesday, February 02, 2005]
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