Do you know how you’re going to respond to the changes to IR35 that are coming in April 2020?
We speak to many clients who aren't clear on what these changes are or what they mean for their businesses.
Like our clients, you may be concerned about what it means for you and whether you will be able to continue to use contractors after April 2020.
The good news is that done properly you can still use contractors compliantly outside of IR35, you just need to make the necessary changes to ensure your business is set up to do so.
To help you with this we created a detailed guide which walks you through what the changes are and what you need to do to comply with them. You can download it here.
To make our guide even easier to absorb we’ve broken our key guidance in to a series of blogs which walk you through each of HMRC’s four key criteria for assessing IR35 compliance and what you need to do to ensure you can continue to use contractors as you do today.
Today’s blog is on the second key criteria – Control
What is control
It’s not always easy to tell the difference between those working inside and those working outside of IR35. But one of the clearest ways to do it is by looking at the level of autonomy a contractor has. The more control they have, the more likely they are to be seen as working outside of IR35.
To assess this, ask yourself two questions: “is this person behaving like an employee?” and “are we treating them like an employee?” To differentiate them from an employee or someone inside IR35, a contractor working compliantly outside of IR35 should:
- Deliver the services you need in a manner that they see fit, and with only minimal supervision or direction from you, as opposed to being directly managed day to day.
- Take the lead on where and when the services are carried out, with freedom to work as required to get the job done as opposed to adopting a mandated working pattern e.g. 9-5 Monday to Friday.
- Agree any changes from their contracted services with you, rather than you telling them.
If all of these are true then it’s likely that your Contractors would be seen as acting compliantly, outside of IR35.
There could be legitimate reasons that require a contractor to work full time at one of your sites or during ‘standard’ office hours, for example, if they’re working on a sensitive project and can’t take data off the premises.
This doesn’t immediately put the role or the contractor inside IR35. As highlighted above HMRC use a number of criteria to determine employment status and take into account legitimate business requirements like this.
What companies get wrong with Control
A big mistake companies make when bringing contractors on board is blurring the lines between their role, and that of employees. Asking contractors to work standard 9-5 office hours and
on-boarding them in the same way as they do for employees.
Another mistake we often see is contractors being pulled in to projects they haven’t been engaged for. Starting on one project and then being asked to lend a hand with another that’s falling behind.
Deviating from their contracted services without revising their contract goes against HMRC’s definition of Control.
These mistakes are often due to a lack of clarity in the contractor’s contract, particularly in the service schedules that accompany them. To save time, those bringing contractors onboard create a vague service schedule that doesn’t give a clear end date for the project or gives a role title that could be considered the same as an employee, such as ‘project manager’ or ‘programme manager’.
For HMRC, if the contract terms used are similar to those that you use for employees, it’s a warning sign that the contractor could be considered as operating inside IR35.
What do you need to do to comply?
You should review the way your current contractors are working to make sure they’re all genuinely ‘in control’ of delivering the services you’ve contracted them for.
Your contractors should have autonomy to take the lead on delivery, rather than you or your colleagues directing them. Service schedules need to be kept up to date and include delivery milestones to reflect the expected outcomes.
Include evidence of self-direction so that it’s clear a contractor is using their own knowledge and skill by using service descriptions (e.g. deliver project x) instead of role or job titles (e.g. project manager), and make it clear that the contractor determines how and when to do the work.
By doing all of the above, it shows HMRC that your contractors aren’t being managed by you and are operating as expected for their outside of IR35 roles.
With Control covered, the third criteria focuses on the level of Financial Risk the contractor takes on as part of their contract with you which we cover in the next blog in this series.
If you want to get our full guide on what you need to do to ensure you are ready for the April 2020 IR35 changes then click here to download it today.