How to take the private sector IR35 reforms in your stride – Criteria 4: Part and Parcel

2019-09-24 |  Clare Allan

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 fourth and final criteria – Part and Parcel

What is Part and Parcel?

When gauging whether a contractor is operating in line with their outside of IR35 designation,

few criteria are as black and white as part and parcel.

The name itself sums things up perfectly: if your contractors are part and parcel of your business, then they’re likely working inside IR35, and HMRC will expect you to treat them as such.

Examples of this include:

  • Roles that have line or people management responsibilities where your contractors are managing teams in your business and taking responsibility for BAU activities such as weekly one to ones and performance appraisals. For short term cover for a line a role (for example to cover a period of recruitment) it could be argued that this would sit outside of IR35 but anything “ongoing” would be viewed as inside IR35 by HMRC.
  • Roles that have employee comparative benefits such as paid holidays, sick leave, overtime, health insurance, free use of onsite gym, staff discounts or any staff reward.
  • Being seen as a member of staff by being introduced to external parties or customers as part of the firm.

If you allow any of the above rather than keeping contractors at arm’s length like a genuinely self-employed person, you’re at risk of failing to meet this criteria.

What companies get wrong with Part and Parcel?

Treating all contractors at your firm in the same way will blur the lines of employment status and give HMRC a stronger case to argue that your contractors are actually operating inside of IR35.

You may not realise you’re doing it, but innocent things like inviting contractors to your team’s weekly catch up meeting, or asking them to attend a staff briefing or Christmas party so they don’t feel left out, can signal they’re more like an employee, not a self employed contractor.

Blatant examples of being part and parcel include giving contractors the same company perks as your employees, such as paid time off for GP or dentist appointments, or free access to facilities like your office gym.

You may think that all of this makes you a friendly, welcoming client. But in the eyes of HMRC, it’s an indication that your contractors haven’t been correctly classified and are operating inside of IR35.

What do you need to do to comply?

Few of the points raised in this section ever appear in your contractors contracts - instead being included “as normal” when a contractor begins working with you - so you need to be vigilant.

The easiest way to address this is to review your company policies to ensure there’s a clear distinction between working practices and benefits received by your employees and those for contractors working outside of IR35.

This should include being clear that there is no ‘mutuality of obligation’ between your company and the contractor. Any indication that you are required to provide, or they are required to accept work from you would put them firmly inside IR35.

You’ll want to ensure there are no employee benefits in your contractor contracts and that access to these are restricted for your outside of IR35 contractors.

You may want to update your onboarding procedures too, so that contractors are clearly differentiated from employees. That includes everything from swipe cards for access to your premises, to email signatures that external clients might see.

Depending on your internal processes you may even need to look at developing a separate on-boarding process specifically for this group.

That’s all four criteria covered, and if you follow the steps we’ve outlined in this series, you should be in good shape to review and refresh your contractor systems, procedures and contracts to be compliant and ensure you can continue to use contractors as you do now, after April 2020.

If you’ve found this series useful and 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.