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Basic
Checklist |
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The
Inland Revenue has recently released the document IR175 that attempts
to provide some clarification of the IR35 legislation for contractors
in all industries. This document offers no clearer explanation for
contractors and the essential question of whether or not the legislation
will apply to each contractor is treated in the same way as in the
IR56 employment status guidance published over four years ago. The
new publication does not fully take into consideration recent case
law developments and the realities of the knowledge-based industries,
where some estimates indicate 250,000 service companies are affected.
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Although
it is difficult to simplify the body of case law that determines employment
status, the following points may offer a better interpretation for
contractors still unsure about the scope and application of the IR35
legislation. Some contractors may have been advised that they are
caught by the legislation when some of the traditional tests are not
easily applicable to their industry or circumstances. |
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However,
individual circumstances and the overall effect need to be analysed
in order to arrive at a conclusion. We have prepared this guidance
in order to clarify but not oversimplify the application of the employment
status tests. |
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Our
reading of the Case Law would suggest a more applicable set of test
questions for contractors: |
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If
you can answer yes to most of the following questions then you would
probably be considered a deemed employee of the client for the contract
in question and the arrangement will be caught by the IR35 rules:
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1.
Are you required to perform the services personally? |
| 2.
Are you required to work set hours or a standard number of hours
a week? |
3.
Is the client responsible for determining how the services are to
be performed? |
| 4.
Can the client tell you what to do, when to do it and may the client
alter the instructions? |
5.
Are you entitled to receive overtime pay? |
| 6.
Are you restricted to working for only one client at a time |
| 7.
Are the services in the same nature as those provided by the client
to its customers? |
| 8.
Must you abide by the same rules as the client's employees? |
| 9.
Are you entitled to any of the benefits received by the client's
employees? |
| 10.
Does the client provide training for you? |
| 11.
Can you terminate or give notice without incurring liability to
the client? |
| 12.
Is the client obliged to offer further work to you? |
| 13.
Are you expected to accept further work when offered? |
| 14.
Is it the intention of yourself and the client that you are an employee
of the client? |
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| If
you can answer yes to most of the following questions then you would
probably not be considered a deemed employee of the client and the
contract in question would not be caught by the IR35 rules: |
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| 1.
Do you determine how the services are to be performed? |
| 2.
Can you utilise your own equipment to perform any of the services? |
| 3.
Do you have to rectify incorrect work in your own time and/or without
extra charge? |
| 4.
Can you legitimately decline further work if offered by the client? |
| 5.
Can you allocate parts of the work to others? |
| 6.
Do you have a genuine right to provide a substitute worker? |
| 7.
Are the services provided external to the client's core business? |
| 8.
Are you only engaged for a specific piece of work or project? |
| 9.
Can you determine the service hours and priorities? |
| 10.
Can you determine the locations? |
| 11.
Do you provide professional indemnity insurance to cover your services? |
| 12.
Do you receive payment in arrears on presenting invoices? |
| 13.
Do you charge VAT on invoices presented? |
| 14.
Do you have a significant investment in tools, training or facilities? |
| 15.
Can you realise a profit or loss as a result of your services? |
| 16.
Are you free to provide services to multiple clients at one time? |
| 17.
Do you use any methods to advertise services to other clients? |
| 18.
Is it the intention of yourself and the client that you are an independent
contractor? |
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| Contracts
can be drafted to include the self-employment indicators listed
and exclude the employment indicators if this is the true nature
of the engagement. This would usually require knowledge of the case
law, the industry and experience in drafting contracts. There may
be significant financial liabilities arising from a poorly drafted
contract both in general terms and if caught by IR35. |
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