Home > Freelancers & Contractors > The Top 10 Reasons for Failing IR35

The Top 10 Reasons for Failing IR35

By: J.A.J Aaronson - Updated: 12 Mar 2012 | comments*Discuss
 
Ir35 Employment Contractors Outside Ir35

IR35 is one of the most important obstacles facing contractors. Originally designed to prevent ‘disguised employment’, whereby unscrupulous highly paid workers dodged their tax responsibilities, it has become a significant headache for legitimate Contract Workers And Other Freelancers.

If your contract falls within the auspices of IR35, you stand to lose as much as 25% of your take home pay. As such, the stakes are high. You should consider your IR35 position from the very first stages of contract negotiation. Once you have negotiated a contract, it is likely to be difficult to persuade your client to change their terms in order for it to pass IR35. The following are some of the main reasons that contracts fail IR35.

You Cannot Set Your Hours

Contractors, unlike employees, are entitled to work when and where they see fit. As long as you complete the work you are paid to do, you are free to decide how and where you do that work. If your client sets your hours, you will fail IR35.

Your Tasks are not Clearly Defined

Contracts for services (as opposed to contracts of employment) should have a schedule of work attached, clearly setting out the work you are contracted to do. You must ensure you have this in writing, otherwise you will fail IR35.

You Are Named in the Contract

You should not be named in the contract. Instead, the contract should be between your client and your umbrella company, rather than you personally.

You Cannot Provide a Substitute

As the contract is not between your client and you personally, you must be able to provide a substitute in the event that you cannot work. If your client does not agree to this, or if a substitution clause does not appear in your contract, you are likely to fail IR35.

Mutuality of Obligation

Under an employment contract an employer is obliged to give an employee work, and an employee is obliged to take it. This is known as mutuality of obligation. Your contract must be clearly worded so as to avoid this mutuality of obligation. After you have completed the work you are hired to do, the client does not have to give you more work and you do not have to take it. Failure to include this will lead you to fall foul of IR35.

You Cannot Work for Other Clients

If your contract prohibits you from working for other clients, you are likely to be treated as an employee for tax purposes. Ensure that exclusivity clauses are not contained in your contract.

You Take Employee Benefits

You must not take advantage of any employee benefits if you wish to fall outside IR35. This includes incidental items like subsidised food.

You Use Other Company Facilities

Finally, many contractors fall foul of IR35 because, for example, they volunteer as a fire warden at their client’s company. In order to be safe you should never perform any other task or action that might cast you as a disguised employee.

You should remember that HM Revenue & Customs can backdate tax liabilities if you are found to be inside IR35. As such, it is vitally important that you avoid these common pitfalls from the outset.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Yorkie
    Re: How Will My Second Job Be Taxed?
    Hi, I'm in full time employment and in my employers service dept. I earn a decent wage, on the edge if being a higher rate…
    9 April 2019
  • White
    Re: Claiming Tax Relief on Mileage
    Hello there im looking for advice on my current role i have been told i need the fill out a self assessment tax return due to my…
    6 April 2019
  • sim
    Re: Claiming Tax Relief on Mileage
    hi I get payed 45p per mile of my employer for business miles but universal credits say that it's income and reduce my monthly…
    29 March 2019
  • Panco
    Re: How Will My Second Job Be Taxed?
    I work 60 hours per week is £459 in week,but I looking for a job on weekends it’s will be 8 hours £68per booths days how much…
    28 March 2019
  • cdoggywoof
    Re: Are DVLA Car Tax Rates Fair?
    For someone who can only afford a car for £1000 and the VED will cost them £200 each year, which is 20% of the vehicle cost, this…
    21 March 2019
  • Whitely
    Re: How Will My Second Job Be Taxed?
    Hi, I am earning approx £9,000pa working in one job. I have been offered a second job where I will earn £3,400pa so it takes…
    19 March 2019
  • Leroy
    Re: How Will My Second Job Be Taxed?
    If i work 16.2.5 hours a week then in a second job do 10 hours a week how much tax will a pay
    13 March 2019
  • Fire
    Re: How Will My Second Job Be Taxed?
    Hi I work part time 22.5 hrs week and earn £17,500 year. I have just been offered extra work of 3 - 6 hours a month earning…
    13 February 2019
  • shelle
    Re: How Will My Second Job Be Taxed?
    i currently work 10 hors in supermarket been offered a job at care home 30 hours a week how / what will happen to tax how…
    23 January 2019
  • Wild child
    Re: How Will My Second Job Be Taxed?
    Hi I have a full time job and get 16,500 a year but thinking of getting a second job that I get 5,280 a month how much tax…
    21 January 2019