How to ensure your contractors remain outside IR35

Although the government implemented it later than planned, the IR35 off-payroll regulation eventually went ahead in April 2021. The IR35 rule was introduced to prevent contractors from using their limited company or sole trader status to pay less tax and national insurance. In simple terms, it is designed to crack down on contractors working as an employee but under the guise of a contractor.

Are you affected by IR35?

There are several reasons why you might decide to use a contractor. You might only have a short-term need or want the flexibility of ending the contractor whenever you want. Contractors usually work on multiple projects with different clients and often prefer this flexibility to a permanent role. Due to the UK government believing that a significant number of workers were using their contractor status to exploit the tax system, IR35 was introduced. Small businesses with less than £10.1 million annual turnover and fewer than 50 employees are exempt from the IR35 regulation.
The IR35 changes in themselves can seem quite complex. These are the general rules on IR35:

  • If a contractor is inside IR35, HMRC concerns them as an employee for tax purposes.
  • If a contractor is outside IR35, they are considered a contractor, and no further action is necessary.

It is not just the contractor who can suffer from inside IR35 determination. The employer also must pay taxes and NI as if the contractor was a permanent employee. An example of a contractor suffering at the hands of IR35 was the former Sky Sports presenter Dave Clark, who lost an IR35 appeal against HMRC, and subsequently ended up with a £281,000 tax bill.

Maintaining Outside IR35 Status

The changes have affected some of the biggest employers in the UK. Several big brand banks, banned their entire limited company contractors. In some cases, contractors were offered permanent roles. However, the IR35 changes do not automatically mean you need to dismiss your contractors; you just need to be diligent about how they work. These are some ways you can ensure your contractors are outside IR35:

  • Ensure the contract states the word ‘contractor’ and that there are no specific hours detailed. For instance, you might say that the contractor will work pre-determined days and be available when you need them, but you should not state the expected hours.
  • Keep any documentation that shows the contractor informing you that they are taking a holiday. You should not be giving the contractor permission or request that they get holidays approved.
  • Having regular meetings and catch-ups is perfectly fine but telling the contractor what they should do each day or asking for proof of completed work might suggest you treat them as an employee.
  • It is better for this case if the contractor is based at home or primarily based at home. It negates the chances of being inadvertently invited to an office party or team day out. These actions would suggest that the contractor is an employee (to HMRC at least!). Otherwise, have a way of clearly demonstrating that they are a contractor; a different security badge, visitor’s pass, etc.
  • Refer to the contractor as such during meetings with clients and on any formal communication. Some employers prefer that clients believe everyone is an employee of the organisation, but for IR35 purposes, keep it factual.
  • Sometimes the contractor is asked to use your systems and even need to send emails using your email servers. If this happens, make sure that their email address and/or signature clearly shows that they are a contractor and not a permanent member of staff.
  • It is best to stay away from offering a full-time contract to a contractor unless it is for a specific time or project. Instead, you might use them for 2/3 days a week.
  • The contractor should not have access to the perks that employees have—for instance, a gym membership, bonuses, etc.

Think of the contractor as someone who is entirely self-sufficient. You assign them the work needed, but you leave them to get on with it. They communicate with the team, but they do not get involved in any social aspects. You should not have performance management or one-to-ones with the contractor. Instead, you can arrange regular catch-up calls to see how the project is going.

At myCOS, we provide our clients with high quality project management services. We deal with the contractor on your behalf, ensuring they are outside IR35. Contact us today (link to contact us) if you are looking for your next contractor or team.

The Complete Guide to Working as a Successful Contractor

As a contractor, you are there to fulfil a need, whether long-term or for a short contract. Therefore, you should start your contract with a mission to perform as well as possible and to meet the objectives set by your client. A successful contract could lead to further projects and help you build relationships and future contacts.
Here is our complete guide to working as a successful contractor.

Understand Expectations

First and foremost, you should take the time to understand the needs of the client and their expectations of you. In doing so, you will be clear about your goals and will be in a better position to impress your client. Contractors are hired for a specific need. If you are unsure of the outcome when you finish your contract, you should seek clarification.

Adhere to Deadlines

If your client has given you deadlines to achieve throughout the project’s lifecycle, you should make sure you adhere to these. Likewise, if there are any issues along the way, make sure you communicate these with your client, giving them notice that you may need an extension.

Regular Communication

To keep a project on track, it is crucial to ensure lines of communication are open and that both parties are aware of what stage the project is at. Your client should be able to reach you to discuss the contract, and you should be able to provide them with clear updates.

Manage Expectations

You should always be focused on managing the expectations of your client. If you are asked to do something that you are unable to fulfill or that you may need some additional training on, you should inform them straight away. It is more frustrating for a client if you have agreed to an assigned piece of work, only to fail to deliver it.

Update Skills

Even during the duration of your contract, it is a good idea to keep updating your skills, especially those that will help you in your current contract. In addition, there are many online courses that you can do from home in your free time, and these may help you secure further contracts in the future.

Market your Company

Working as a contractor, you will be working through your own limited company, and many contractors forget (or do not realise) that they should be marketing their skills and knowledge via their Personal Services Company (PSC). An easy (and cheap!) way of doing this is by purchasing an online domain for your company and making use of a professional business email address, reflecting your PSC, including signatures and even logos where appropriate! Maintaining an updated website with all of your relevant skills and past clients is also a sure way of working as a successful contracts (and also helps keeping outside of IR35!)

Efficient Time Management

As a contractor, it can be easy to slip into a routine where you work many more hours than you are paid for, especially if your project is home-based. It is crucial to offer flexibility to your clients, but you should also maintain your physical and mental well-being. You won’t be able to support a client if you have reached burnout stage. Therefore, keep a good routine while also aiming to help the client with additional needs.

Build Good Relationships

Although you are working for a set period with the client, you should aim to build good relationships with all contractors or permanent staff. When good relationships are built, the project is more likely to reach a positive conclusion, making for a more pleasant working environment.

Manage Finances

Although you are likely to be paid more as a contractor than a permanent staff member, you also have a tax bill to consider. With this in mind and the fact that the contract could end, you should aim to manage your finances efficiently. Save where you can so that you are prepared for the future.
At myCOS, we offer high-quality project management services. If you are looking for your next contract role, you can contact us (link to email), and we will inform you of any requirements that match your skills and experience.

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