How to be outside IR35
By AL Walker, Last updated: 2023-01-11 (originally published on 2021-06-22)
With the April tax changes in the UK, consultants, freelancers, and contractors may need to make some small adaptions to the way they work to make sure they can clearly be outside IR35 for their next tax return.
So, how do you make sure you are outside IR35? Here are some strategies to put in place that will ensure you set yourself up as properly self employed.
Ignore the perks
Yup, all those lovely little bonuses that makes a workplace into a home away from home should be out of bounds for you. That includes the free barista service, the office gym, creche, and anything else that is a built-in perk for employees. If you want to clearly keep yourself outside the limits of IR35, these workplace comforts are not for you.
No benefits either
Benefits are for employees. If you’re a contractor, (and therefore outside IR35) you shouldn’t be getting private healthcare from your client. Also, you shouldn’t get paid holidays. There’s no sick pay in the world of a freelancer. And pension contributions are out of the question.
It’s all too easy to accept an invite into the internal communications channels for easy access to the people you’re working with. However, this is a no no for keeping outside IR35. You’ll have to decline a company email or access to the Intranet where you’ve taken up a contract. In general, this also includes frequently used comms apps like Slack, Flock, and Hangouts.
Having professional indemnity insurance is considered essential for contractors, consultants and freelancers alike. As indemnity insurance covers your legal costs and and compensation payments if your client takes legal action against you for any element of the services you provide or mistakes that you make, you really shouldn’t be without it as a working professional. And, it’s a clear marker for HMRC that you are indeed self employed.
Clear projects with clear endings
For a contractor, having deadlines and end points to your contracts is a part of the service that makes you a contractor. Your relationship with your clients should have projects with clear definition, goals and timelines. This includes a conclusion to the contract, rather than keeping it ongoing. To be outside IR35, you need to work on multiple projects simultaneously and have multiple sources of income.
Work where you want
Although you may need to be on-site at times for meetings and project management reasons, you should also be able to work from wherever you need to be and not subject to regular working hours like an employee is. You also use your own equipment to do the job. Flexibility is one of the perks of being a contractor.
Get it in writing
Keeping your paperwork in order will help if you do have to undergo an HMRC investigation. Clauses in your contract should include no mutuality of obligation, rights of substitution, immediate dismissal, and control clauses. Your client should never have direct control over the way you provide your services. Your client does not need to provide you with work. You also do not need to say yes to the work you offer.
You need to include these clauses in your consultancy agreement, freelance agreement or supply of services contract with your clients. And then importantly, live by them as well. Otherwise you could be viewed as an employee.
Whether you’re a consultant, a contractor, or a freelancer, make sure you follow these tips to be outside IR35 and keep within the new rules that are there to protect those who are truly self-employed.
You can also check out our IR35 checklist to make sure you have everything in order.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.
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