If you’re a client that hires contractors at a business with a turnover of more than £10.2million, a balance sheet total exceeding 5.1million, or more than 50 employees, IR35 legislation likely applies to you.
With the private sector deadline approaching in April 2020, now is the time to ensure you will continue to be able to protect your business and any future contractors from the ramifications of IR35. The following steps may help you protect your business from the effects of the off payroll tax.
1. Limit the degree of supervision, direction and control you have over your contractors
Ensure that your contractors are fully in control of what, how, when and where they perform their work where possible: they shouldn’t have to follow instructions in the same way an employee would. Contractors shouldn’t have line managers or appear in your business organisation charts, but they should still adhere to your business processes and standards, and provide any required updates or reports for their work.
2. Employment contracts should be outcome based
Ensure that any contracts with contractors clearly state the work that needs to be done and what the outcome of that work should be. Avoid using any terms that show an obligation for you to offer work, or the contractor to accept it, and never include any options to extend a contract: your contractors should have the right to work from project to project without any obligation to carry on to the next project. You should only accept work that is inside the scope of the assignment, or else the scope should be updated to reflect any changes to the assignment.
3. Encourage contractors to be in business for themselves
Avoid giving contractors a business email address, but if this is a requirement for the job, clearly identify that the contractor is an external resource e.g. john.externalconsultant@company.com. Contractors should also use their own equipment unless they can not for valid technical or security reasons. If contractors work remotely or from home, encourage them to use their own equipment if possible.
4. Consider IR35 in your contract terms
Avoid adding any employment type benefits or payment terms, regular or guaranteed, including retainers, in your contracts. You should be explicit about a lack of exclusivity, identify termination provisions, include liability & indemnity provisions and any insurance required in your contracts. You can also add an intellectual property clause, use GDPR controller and processor distinctions, and specify the use of the contractor’s own equipment or mention the technical / security reasons that they can not use their own equipment. It is also worthwhile to explicitly identify the services of the supplier & client in your contracts.
When the project is complete, you should confirm the payment, detail the work completed, the hours and the rate if periodic invoices were required.
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Visit our IR35 page th April 2020, or how an HMRC investigation may work.
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