Intermediaries Legislation IR35

Intermediaries legislation was introduced in April 2000 but was first proposed by the chancellor in the 1999 budget with details provided in a budget press release. The release was numbered IR35 and it is after this that the legislation is commonly known.

IR35 seeks to determine:
• If there is a “deemed employment” whereby if the intermediary (in this case the limited company) were removed would the worker be operating as a “disguised employee”.
• If workers who take part of their income through dividends should be allowed to do so from a taxation perspective or should it be treated as “earned” income.

There is no statutory definition of employed or self-employed however there are 5 main factors to consider when determining whether the contract falls within IR35 regulations (remember this may differ contract to contract).

Right of Substitution
In your contract is there a right of substitution that would allow you to provide a substitute should you be unable to provide your services. To provide as strong a case as possible this should not be fettered by the agency or the client having the option to veto your substitute. The contract should be between the agency/client for the services of the company not for a specific person to undertake this role.

Part and Parcel
While on the client site you should not become part and parcel of the organisation. You should not have business cards in the client name, attend staff appraisals, have a mobile phone provided by the client and have no staff benefits such as a subsidised staff canteen.

Financial risk
Working through the intermediary should mean that you incur financial risk. You would incur the cost of any training necessary for the role, insurances and other business related expenses. If the services were not satisfactory you may have to correct the work in your own time at your own cost. You would also run the risk of the client failing to make payment for your company’s services.

Mutuality of Obligation
There should be no Mutuality of Obligation in your contract. You should ensure you are not bound to work exclusively for the one contract and when the current contract expires you are not bound to extend your services. This also applies to the agency/client in that they are not bound to offer other work.

Control and Supervision
While working on the contract you should not be under the control and supervision of the client. Ideally the work would be a project that you would control; reporting back on agreed deadlines, you should determine how to carry out the role.

The above factors help to build a picture of how you would be working under the contract other areas to consider could include the ability to work from home, deciding your own hours, provision of equipment and basis of payment e.g. hourly verses fixed rate for project.

You may also wish to visit http://www.hmrc.gov.uk/employment-status/index.htm for further information.

For further information around IR35 or assistance considering your position please contact us on 01625 528 608.