So the previous IR35 for Hiring Managers write up was well received at client co. Now been asked to write up a justification for an outside determination.
Draft version below with specific role and client details redacted. Some of it is specific to this engagement but you should get the idea.
Comments and corrections welcome. Feel free to pinch and use yourselves if you want.
IR35 Status Determination
External consultants are engaged by the business to ensure that:
• Projects receive the <specialist> consultancy they require
• There is a formal record of decisions, approvals and evidence of compliance
<CLIENT> do not have permanent staff capable of carrying out this work and have engaged the consultants Ltd. Companies for the specialist services they can provide.
Status determination
IR35 status is determined by testing contracts and working arrangements against a hypothetical contract of employment. This contract is based on employment law and relies on 3 key factors.
• Supervision, Direction or Control,
• Mutuality of Obligation
• Right of Substitution.
These factors are all recognized in law as being essential to a contract of employment and have been tested repeatedly in the courts. While other circumstances may be considered (See Other Factors below) for a contract of employment to exist all three must be in effect.
There must be Supervision, Direction or Control (SDC)
For supervision to apply there must be someone overseeing another person doing the work to ensure that they are actually doing it and that the work is being done correctly to the required standard. Supervision can also involve aiding or assisting someone to develop their skills and knowledge.
There is no supervision of Consultants work. Consultants work directly with project teams, independently of <CLIENT> management, and provide advice and guidance on the identification and application of relevant requirements. Their decisions are based on professional judgement and experience. They are not ratified, reviewed or approved by <CLIENT> management.
The consultants Ltd. Companies carry liability for errors or costs incurred in the course of the work and indemnify <CLIENT> against those errors and costs.
Work may be carried out on <CLIENT> premises, from the Consultants own premises or from such locations as the consultants deem appropriate.
<CLIENT> does not provide training or support to develop the consultant’s skills or knowledge.
Direction involves someone making another person do their work in a certain way, generally by providing instructions, guidance and advice as to how the work is to be done. Someone providing direction will often coordinate how the work is done as it is being undertaken.
Consultants are not subject to direction from <CLIENT> management or staff. Consultants follow their own methods of working to deliver the objectives. There is no coordination with other <CLIENT> staff or management in the way the work is carried out. <CLIENT> management or staff provide no instruction, guidance or advice on how the work is done.
Work may be carried out on <CLIENT> premises, from the Consultants own premises or from such locations as the consultant deems appropriate.
Control is where you have someone dictating what work a person does and how they should go about doing that. This also includes the power to move the worker from task to task as priorities change.
Consultants are not subject to control over the work they do and how they go about it. Consultants balance their own work load and will accept or refuse requests from <CLIENT> staff and management to take on work at their own discretion. Consultants are free to engage assistance outside of <CLIENT> to help them carry out the work at their own expense.
<CLIENT> management and staff have no control over how the consultants carry out work that is accepted nor can they force the consultant to undertake work without their agreement. Requests for work to be done outside the scope of the agreed contract terms would require a renegotiation of that contract and is not guaranteed to be accepted or agreed.
There must be Mutuality of Obligation (MOO)
In simple terms, MOO means that in order for an employment relationship to exist, there must be an obligation on a work-provider to provide work and an obligation on the individual to carry out the work. For clients with freelancers working outside IR35 this means that if the client has no work for them to do, they are not obliged to find any nor pay them when work is not being done. For the Freelancer they are not obliged to accept any work from the client nor can they charge the client when work is not carried out.
There is no Mutuality of Obligation between the Consultant and <CLIENT>. Consultants will accept or refuse requests from <CLIENT> staff and management to take on work at their own discretion. <CLIENT> are not obliged to offer work when there is none to be done or to pay consultants when they are not working e.g. over the Christmas period when the business is closed or when Consultants are not available to work due to other commitments. Consultants do not charge <CLIENT> for periods where they are not actively engaged on <CLIENT> work, such as when on holiday or working for other clients.
[There must be no Right of Substitution (ROS)
In the context of IR35 a right to substitute means a contractually enforceable right for a limited company contractor to replace its representative, at their own cost and subject only to reasonable criteria such as suitability. Provided the substitute is appropriately qualified and experienced the client should not be able to refuse the substitution.
Consultants have a contractual right to substitute an appropriately qualified and experienced representative to carry out work on their behalf should they wish to do so as stipulated in <contract reference>.
Other Factors
While SDC, RoS and MOO are the key factors involved, other circumstances may clarify the situation in cases of doubt. These include:
Use of Equipment
While the provision of certain vital client equipment is a given e.g Laptops for access to secure client systems, using client mobile phones or cars suggests that a working arrangement is perhaps more suited to that of an employee.
Consultants will use <CLIENT> supplied equipment where appropriate, but will otherwise provide their own as required. This includes but is not limited to computer equipment, office equipment, mobile devices such as phones and tablets, stationary and transport.
Business Presence
For a contractor’s working arrangement to fall outside IR35, it’s important they operate just like any other business. And this includes having a business presence. Insurance, a company website, letterheads, business cards, a registered office address, legal structure and VAT registration could indicate to HMRC that a contractor is genuinely self-employed, and not working through a PSC simply to avoid paying employee taxes.
Consultants all operate through legally incorporated, VAT registered Ltd. Companies with appropriate legal structures, registered offices and have appropriate insurances in place including professional indemnity and employer’s liability.
Number of Clients
Working on a number of different contracts at the same time indicates that a contractor is less likely to be working in an employee-like arrangement, and therefore outside IR35.
Consultants are free to engage with other clients while working on behalf of <CLIENT> and will do so at their discretion.
Employees are not permitted to carry out significant work outside of their employment with <CLIENT>, where that work would make them unavailable for work with <CLIENT>.
Client Integration
The level at which contractors integrate with clients can be an indication of IR35 status. From how employees in the organisation perceive the working arrangement, to making use of the employee car-park or attending office parties, to sit outside IR35, differences between the contractor and the employee must exist.
Consultants are not part and parcel of the <CLIENT> organisation.
• ID cards clearly identify them as contractors.
• They are not entitled to staff discount
• They are not required to pay the parking levy for use of the carpark
• They are not included in corporate management presentations or announcements
• They receive no training or professional development from <CLIENT>
• They are not expected to complete mandatory training and awareness courses outside those required for regulatory compliance.
• They are not entitled to join the <CLIENT> pension scheme not are they entitled to other corporate benefits.
• Business travel is carried out at the consultants own expense.
• They are not subject to routine appraisals, performance reviews or career development plans
• They are not restricted in the number of day’s holiday they may take or required to give notice or obtain permission for holiday time beyond notifying the client that they will not be available as a matter of professional courtesy.
Payment
When a contractor is paid by the hour, day or week, this might suggest that the working arrangement has similarities to employment, compared to say a fixed project fee, which is an obvious indicator of self-employment.
While Consultants are not paid on a fixed project fee all work is carried out for discreet projects and is charged back to the business. Employees are not expected to generate a charge back and should the consultant not recharge sufficient hours they will only be paid pro-rata against the hours recharged.
Draft version below with specific role and client details redacted. Some of it is specific to this engagement but you should get the idea.
Comments and corrections welcome. Feel free to pinch and use yourselves if you want.
IR35 Status Determination
External consultants are engaged by the business to ensure that:
• Projects receive the <specialist> consultancy they require
• There is a formal record of decisions, approvals and evidence of compliance
<CLIENT> do not have permanent staff capable of carrying out this work and have engaged the consultants Ltd. Companies for the specialist services they can provide.
Status determination
IR35 status is determined by testing contracts and working arrangements against a hypothetical contract of employment. This contract is based on employment law and relies on 3 key factors.
• Supervision, Direction or Control,
• Mutuality of Obligation
• Right of Substitution.
These factors are all recognized in law as being essential to a contract of employment and have been tested repeatedly in the courts. While other circumstances may be considered (See Other Factors below) for a contract of employment to exist all three must be in effect.
There must be Supervision, Direction or Control (SDC)
For supervision to apply there must be someone overseeing another person doing the work to ensure that they are actually doing it and that the work is being done correctly to the required standard. Supervision can also involve aiding or assisting someone to develop their skills and knowledge.
There is no supervision of Consultants work. Consultants work directly with project teams, independently of <CLIENT> management, and provide advice and guidance on the identification and application of relevant requirements. Their decisions are based on professional judgement and experience. They are not ratified, reviewed or approved by <CLIENT> management.
The consultants Ltd. Companies carry liability for errors or costs incurred in the course of the work and indemnify <CLIENT> against those errors and costs.
Work may be carried out on <CLIENT> premises, from the Consultants own premises or from such locations as the consultants deem appropriate.
<CLIENT> does not provide training or support to develop the consultant’s skills or knowledge.
Direction involves someone making another person do their work in a certain way, generally by providing instructions, guidance and advice as to how the work is to be done. Someone providing direction will often coordinate how the work is done as it is being undertaken.
Consultants are not subject to direction from <CLIENT> management or staff. Consultants follow their own methods of working to deliver the objectives. There is no coordination with other <CLIENT> staff or management in the way the work is carried out. <CLIENT> management or staff provide no instruction, guidance or advice on how the work is done.
Work may be carried out on <CLIENT> premises, from the Consultants own premises or from such locations as the consultant deems appropriate.
Control is where you have someone dictating what work a person does and how they should go about doing that. This also includes the power to move the worker from task to task as priorities change.
Consultants are not subject to control over the work they do and how they go about it. Consultants balance their own work load and will accept or refuse requests from <CLIENT> staff and management to take on work at their own discretion. Consultants are free to engage assistance outside of <CLIENT> to help them carry out the work at their own expense.
<CLIENT> management and staff have no control over how the consultants carry out work that is accepted nor can they force the consultant to undertake work without their agreement. Requests for work to be done outside the scope of the agreed contract terms would require a renegotiation of that contract and is not guaranteed to be accepted or agreed.
There must be Mutuality of Obligation (MOO)
In simple terms, MOO means that in order for an employment relationship to exist, there must be an obligation on a work-provider to provide work and an obligation on the individual to carry out the work. For clients with freelancers working outside IR35 this means that if the client has no work for them to do, they are not obliged to find any nor pay them when work is not being done. For the Freelancer they are not obliged to accept any work from the client nor can they charge the client when work is not carried out.
There is no Mutuality of Obligation between the Consultant and <CLIENT>. Consultants will accept or refuse requests from <CLIENT> staff and management to take on work at their own discretion. <CLIENT> are not obliged to offer work when there is none to be done or to pay consultants when they are not working e.g. over the Christmas period when the business is closed or when Consultants are not available to work due to other commitments. Consultants do not charge <CLIENT> for periods where they are not actively engaged on <CLIENT> work, such as when on holiday or working for other clients.
[There must be no Right of Substitution (ROS)
In the context of IR35 a right to substitute means a contractually enforceable right for a limited company contractor to replace its representative, at their own cost and subject only to reasonable criteria such as suitability. Provided the substitute is appropriately qualified and experienced the client should not be able to refuse the substitution.
Consultants have a contractual right to substitute an appropriately qualified and experienced representative to carry out work on their behalf should they wish to do so as stipulated in <contract reference>.
Other Factors
While SDC, RoS and MOO are the key factors involved, other circumstances may clarify the situation in cases of doubt. These include:
Use of Equipment
While the provision of certain vital client equipment is a given e.g Laptops for access to secure client systems, using client mobile phones or cars suggests that a working arrangement is perhaps more suited to that of an employee.
Consultants will use <CLIENT> supplied equipment where appropriate, but will otherwise provide their own as required. This includes but is not limited to computer equipment, office equipment, mobile devices such as phones and tablets, stationary and transport.
Business Presence
For a contractor’s working arrangement to fall outside IR35, it’s important they operate just like any other business. And this includes having a business presence. Insurance, a company website, letterheads, business cards, a registered office address, legal structure and VAT registration could indicate to HMRC that a contractor is genuinely self-employed, and not working through a PSC simply to avoid paying employee taxes.
Consultants all operate through legally incorporated, VAT registered Ltd. Companies with appropriate legal structures, registered offices and have appropriate insurances in place including professional indemnity and employer’s liability.
Number of Clients
Working on a number of different contracts at the same time indicates that a contractor is less likely to be working in an employee-like arrangement, and therefore outside IR35.
Consultants are free to engage with other clients while working on behalf of <CLIENT> and will do so at their discretion.
Employees are not permitted to carry out significant work outside of their employment with <CLIENT>, where that work would make them unavailable for work with <CLIENT>.
Client Integration
The level at which contractors integrate with clients can be an indication of IR35 status. From how employees in the organisation perceive the working arrangement, to making use of the employee car-park or attending office parties, to sit outside IR35, differences between the contractor and the employee must exist.
Consultants are not part and parcel of the <CLIENT> organisation.
• ID cards clearly identify them as contractors.
• They are not entitled to staff discount
• They are not required to pay the parking levy for use of the carpark
• They are not included in corporate management presentations or announcements
• They receive no training or professional development from <CLIENT>
• They are not expected to complete mandatory training and awareness courses outside those required for regulatory compliance.
• They are not entitled to join the <CLIENT> pension scheme not are they entitled to other corporate benefits.
• Business travel is carried out at the consultants own expense.
• They are not subject to routine appraisals, performance reviews or career development plans
• They are not restricted in the number of day’s holiday they may take or required to give notice or obtain permission for holiday time beyond notifying the client that they will not be available as a matter of professional courtesy.
Payment
When a contractor is paid by the hour, day or week, this might suggest that the working arrangement has similarities to employment, compared to say a fixed project fee, which is an obvious indicator of self-employment.
While Consultants are not paid on a fixed project fee all work is carried out for discreet projects and is charged back to the business. Employees are not expected to generate a charge back and should the consultant not recharge sufficient hours they will only be paid pro-rata against the hours recharged.
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