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"How do I avoid IR35" is a popular question contractors often ask. Particularly with the implementation of the rules for off-payroll working in the private sector which came into force on 6th April 2021. For the past year there has been a scramble to find ways in which limited company contractors can arrange their affairs so that they appear to be working outside IR35.
However the upfront answer to the original question is, you can’t avoid IR35. It’s the details and circumstances of your assignment and the way in which you work that will determine whether or not you are ‘inside IR35’ or ‘outside IR35’.
So, if you’re looking for help on how to avoid IR35, our advice would be to stop looking. As of April 2021, the decision as to whether you are likely to be working inside or outside IR35 will rest with your end client. Your client should make that decision based on the facts of your current or prospective engagement.
However, there are certain things you can do to ensure that your client takes into account all the facts, both favourable and unfavourable, on which a status decision is taken. Bear in mind that if you act, behave and are treated as an employee then in HMRC’s eyes you probably are an employee and you should pay tax and National Insurance Contributions as an employee!
Yes, sending a substitute is positive evidence that you are not providing personal services. However, it’s not sufficient that the contract merely states substitution is possible, it’s got to be real.
Not necessarily. You need to ensure that the understanding with your prospective client, and the ensuing contract reflects the fact that you are working on a specific project, for a set time frame with clear deliverables for which you are responsible. Working with the client’s own staff is inevitable and doesn’t make you an employee too.
Yes, potentially. If the end-client treats you as just another member of his workforce you may well be considered as an employee. It’s important at the outset that your client accepts, and the contract shows, that you (or rather your PSC) have been contracted for a specific purpose and ideally for a fixed period of time.
Yes. This state of affairs indicates that you are being considered as being part and parcel of the organisation and therefore being treated as an employee. Difficult as it may be, you need to distance yourself from these activities in order to demonstrate your status as an independent contractor.
Yes. The more clients you work for, either simultaneously or one after the other, the easier it is to demonstrate that you are genuinely self-employed. It’s a bit more difficult if you are working solely for one client for an extended period of time when both sides become accustomed to operating as employer/employee.
To begin with you need to have a review of how your working practices are conducted. It is no use if your contract says you do this, but the reality is that you do that. HMRC insist that any evaluation of status is based on the reality of the engagement, not the theory of how it should be operating.
Furthermore, your client should have provided you with a status determination using the Check Employment Status Tool, an online HMRC tool which provides an employment/self-employment status outcome. If you have not reviewed, agreed and remediated certain aspects of the engagement you may find the tool delivers an inside IR35 outcome.