Tips for contracting outside of IR35

The big concern these days for many self-employed people or contractors is how to ensure and check that you are working outside IR35. If you have a solid grasp of IR35, you can negotiate effectively and engage in meaningful discussions about your contracts to avoid falling under IR35 regulations. It’s crucial to remember that determining your status is not solely your responsibility; often, it is a purchasing department or an inexperienced individual who makes this decision, particularly in contracts with medium and larger companies. Therefore, knowing the rules allows you to advocate for yourself and challenge any incorrect assessments.

In this blog, we offer practical hints and tips for working outside of IR35. Understanding the nuances of your contracts and ensuring they reflect genuine self-employment is vital. You should highlight aspects such as project-based work, lack of client supervision, and a clear business identity. By following these guidelines, you can better position yourself to operate outside of IR35 and enjoy the tax benefits associated with self-employment while minimizing potential risks.

1) Work on clearly defined projects, not rolling contracts

You should take contracts for projects that have clear goals and deadlines. If you have an ongoing relationship with a company then you should treat it as a series of individual projects, rather than a rolling contract. Without a fixed deliverable or deadline, your contract may fall within IR35.

2) Working flexibility

As a contractor you need to ensure you have a high degree of flexibility in where and when you work. You shouldn’t be obliged to work only during set hours or from a company premises. For example if you’re an IT contractor, you shouldn’t have to be in the company office 5 days per week 9-5. You may well be required on site sometimes, but you should be able to be flexible wherever possible.

3) Have a proper company profile

Being paid via invoice, having a website, company stationery and trading through a limited company can all help. Market your services via your company name and not your individual name.

4) Work for multiple clients

Marketing your company to get work from multiple clients and not just working for a single client can help you with the IR35 status.

5) No internal comms access

As a contractor, you shouldn’t have a company email address or access to any internal comms channels such as internal email, intranet or any other software used only for internal company communication.

6) No employee perks

Contractors should not be offered perks that employees receive, like paid holiday, sick pay, healthcare or even Christmas parties, gym membership or any other perks normally only offered to employees.

7) Evaluate your status using free online tools

A great place to start is the government ‘check employment status (CEST) tool’ to find out if you’re classed as self-employed or employed.

8) Get your contract and working practices reviewed by an expert

Getting a third-party expert to do a review of your contract, will give you clarity, peace of mind and could save you money. Here at dns, we support thousands of contractors and offer an IR35 review service. It’s not as simple as just checking out a contract, but also looking into your working practices as these working practices can override any contract if it’s ever investigated or ends up in court.

9) Negotiate changes if necessary

It’s wise to have expert on your side to ensure the contract does reflect working practices and if it doesn’t then you need to suggest changes to the terms of the contract.

10) Get a confirmation of arrangements document

If the client agrees to the changes,then it is worthwhile to get the client to sign a written document confirming the arrangements. This can provide excellent proof and defence, should HMRC investigate at a later date.

Also See: Contractor & IR35 myths debunked

11) Tender for contracts

Tendering for contracts can help to demonstrate that you are in business on your own and taking financial risk. Keep records of the tender process, documents, presentations, and emails will help. Even if you don’t win some tenders, having proof of tendering for multiple contracts can help.

Factors That Determine Your IR35 Status

Key factors that determine your IR35 status are crucial for contractors wishing to operate outside of IR35. Understanding these factors can help ensure your contract remains compliant and beneficial. Here are the main considerations:

• Control: The level of control a client has over how, when, and where you work is significant. If you have autonomy in your tasks, it supports a position outside of IR35.

• Substitution: The ability to send a substitute to perform your duties indicates self-employment. If you can appoint someone else to do the work, this strengthens your case for being outside of IR35.

• Mutuality of Obligation: This refers to whether the client is obliged to provide work and whether you must accept it. A lack of obligation on both sides suggests a contract outside of IR35.

• Financial Risk: Taking on financial risks, such as non-payment or liability for your services, is a strong indicator of being outside of IR35.

By focusing on these elements, contractors can better position their contracts as genuinely self-employed engagements, Supporting their status as operating outside of IR35.

How to Structure Your Contracts Effectively

To effectively structure your contracts outside of IR35, it’s essential to focus on key elements that distinguish a genuine contractor relationship from employment. Here are some vital points to consider:

• Project-Based Work: Ensure your contract is project-specific with clear deliverables and timelines. This demonstrates independence and reduces the likelihood of being classified as inside IR35.

• Control and Flexibility: Maintain control over how, when, and where you work. Avoid contracts that impose strict working hours or methods, as these can imply an employer-employee relationship.

• Right of Substitution: Include a clause that allows you to send a substitute if you cannot fulfil your duties. This reinforces your status as a contractor rather than an employee.

By structuring your contract outside of IR35 in this manner, you can enjoy greater financial benefits and operational freedom while ensuring compliance with tax regulations.

The Importance of Mutuality of Obligation

The Importance of Mutuality of Obligation in the context of contracting is crucial for determining whether a contract is outside IR35. Mutuality of Obligation (MOO) refers to the expectation that a client must provide work and that a contractor must accept it. For a contract to be classified as outside IR35, there should be no ongoing obligation for the client to offer further work once the initial task is completed.

Key points include:

• A contract outside IR35 is typically a contract for services, not employment.

• Contractors should ensure their agreements clearly state that there is no expectation of future work after completing specific tasks.

• Using an outside IR35 calculator can help contractors assess their financial position and confirm their status.

By understanding MOO, contractors can better position themselves to operate credibly outside IR35, maximising their earnings while ensuring compliance with tax regulations.

Evidence You Need to Prove Outside IR35 Status

To demonstrate that your contract is outside of IR35, you need to provide clear evidence that you are genuinely self-employed. This means showing that you operate as a business rather than as an employee. Here are key points to consider:

• Contract Transparency: Ensure your contract explicitly states that it is a contract outside of IR35. It should reflect a genuine business-to-business relationship.

• Right of Substitution: Include a clause allowing you to send someone else to perform the work, reinforcing your independence.

• Business Structure: Maintain a professional business structure, such as having a company website, business insurance, and accounting records.

• Control and Freedom: Show that you have control over how and when you complete your work, rather than following the client’s instructions like an employee.

• Financial Risk: Show that you bear financial risk in your work, such as investing in equipment or being liable for mistakes.

By ensuring these elements are in place, you can highlight your position as operating outside of IR35.

Best Practices for Staying Compliant

To ensure compliance while operating outside of IR35, contractors should implement several best practices.

First, maintain clear contracts that specify project details and include a right of substitution, showcasing independence. Regularly review and update these contracts to reflect the actual working arrangements.

Second, establish defined project timelines rather than rolling contracts, which can blur the lines between self-employment and employment.

Third, avoid employee-like perks such as holiday pay or sick leave, strengthening your status as a contractor. Finally, keep detailed records of all communications and decisions related to your IR35 status to protect against potential audits. By following these guidelines, you can confidently operate outside of IR35 while minimising compliance risks.

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