IR35 tips for contractors
Updated: Jul 28
Tips to help contractors stay outside of IR35
IR35 governs whether a contractor working through a limited company is a legitimate business or just an ‘off-payroll employee’ using the limited company structure to avoid. There is a major change in the legislation coming next April that will mean that many contractors lose 10-40% of their income through extra taxes and will almost push thousands of contractors into full-time PAYE jobs. The new change is that rather than the contractor deciding whether they are inside or outside IR35, the responsibility will move to the business issuing the contract. This presents a huge risk and admin burden to these businesses so many will stop using contractors altogether.
If you believe that you’re outside of IR35 then we have some tips to help you continue to operate outside of IR35 in HMRC’s eyes:
1. Have control over what you do
Make sure that you control as much of your working practices as possible. If you are told when, where and how to work then you’re much more likely to be caught by IR35. Try to make it clear to the business issuing the contract that you are in control how the work is carried out and your contract should reflect that.
2. Try to get a right of substitution clause
A right of substitution clause would allow you to allow someone else to do your work should you be unable to complete it. Many large businesses will resist putting this in a contract but this alone has meant people have won IR35 cases against HMRC so try to push hard for this clause to be included.
3. Have the IR35 discussion prior to signing a contract
Make it clear to the business you are contracting for that you believe you are outside IR35 and that the contract should reflect the business-to-business relationship. Many large businesses will have a standard contract that engages a person rather than a business so make sure the contract clearly states that it’s engaging your business and you’re just signing it as a director of that business.
4. Don’t draw HMRC’s attention
We might be biased on this point but as far as we’re aware, the best way to avoid drawing HMRC’s eye to your tax affairs is to hire an accountant. A good accountant should mean there are no errors or late tax submissions that raise red flags in HMRC systems.
5. Get a contract review
HMRC says that it’s the actual working practices that are important when determining IR35 status but in reality, the contract itself will be a big factor because it’s a clear legal document that can provide indisputable evidence. There’s no such thing as an IR35-proof contract, but paying for a contract review is still essential for most contractors and can be very affordable.
6. Avoid ‘mutuality of obligation’
Mutuality of obligation means an employer is obliged to provide work and a worker is obliged to accept. If you can refuse work and work on other projects simultaneously, you're much less likely to be deemed an ‘off-payroll employee’ and get caught within IR35. If you ever actually refuse work, always keep a record just in case.
7. Don’t act like an employee
Don’t go to the office party, don’t eat at the subsidised cafeteria and try not to have an email address with the business domain or business cards with their logo on.
If you need more help you can visit our dedicated IR35 page where you’ll find links to other articles and a link to our discounted IR35 store provided by IR35 experts Kingsbridge.