THE DNS IR35 Checklist

IR35 Checklist - You Need to Know

1. Does your contract provide the right of substitution?

The right of substitution should be unconditional. If your contract does provide the right of substitution but is subject to approval by your client, then it probably will not fall outside IR35. The right of substitution is one of the important criteria for determining IR35 status but it is still not the 100% conclusive evidence. IR35 status is determined by the overall working relationship between the contractor and the client.

2. What is the degree of control over the contractor?

Are you being controlled over how you work, what you work on, when you work on it and which project you work on? If you are working under the direct supervision of manager or a supervisor in that your work is regularly checked or appraised – say in team meetings – it might then determine that you are working as an employee would. In highly skilled jobs, the degree of control is often less than in less skilled jobs. It may therefore seem that a worker in a senior-position does not fall under IR35 on the basis of the amount of control s/he is faced with. However, if the contractor is working as part of a team and is being directed on projects, then it might incline towards falling into the IR35 trap.

3. What is the degree of your involvement in the company?

If you are behaving like an employee, for example you regularly attend staff team meetings, go to staff canteens for meals, enjoy staff functions, and you are strongly involved in client business on a day-to-day basis, then this might well all indicate IR35 status. If you are involved in the decision-making processes of the company, much like a non-executive director, then it too might see you fall under IR35 status.

4. Are you taking any financial risk?

If you are not taking any financial risk then your contract will attract IR35 status. What is meant by financial risk is that you may be required to correct your mistakes, and for that, you will not be paid any money. If you are being paid by the hour or by the day and there is no such risk, then your contract is within IR35. If any provision is mentioned in the contract but actually circumstances suggest that you are not taking any financial risk then you will still fall inside IR35.

5. Do you have more than one source of income and do you work for more than one client at a time?

If you are working on more than one project simultaneously and they are of equal importance and value then it might help to establish that you are acting in the capacity of a business and providing services only through an intermediary. But this is still not conclusive evidence. It may happen that one contract can be classed as IR35 and other outside IR35. I will continue to insist that IR35 status is never determined by one criterion. It is determined by the overall working relationship between the contractor and the client.

6. Do you use your own tools and equipment?

This is not a very significant area, but in the bigger picture and in determining the overall relationship, it could help in determining IR35 status.

7. How flexible is your working?

Once again, this is not a very important criterion, but in the overall picture, it helps in determining whether or not you fall outside or inside IR35. If you can work from home or at your office and you are not required to work from the client’s premises, then this will suggest that you are acting as an independent business as a contractor.

8. Is there an obligation on the part of either client or contractor?

This means that the contractor will have full right to refuse the contract and the client does not have any obligation to provide regular work for the contractor. This is important area, and if there is no mutual obligation, then it will suggest that contract is not one of employment; although, yet again, this is not conclusive evidence.

9. Are you required to give a notice period before terminating the contract?

If you have the right to terminate the contract by giving a notice period then it will indicate that your contract is one of employment. Your right to terminate the contract should only be for the reasons of breach of contract or trust, although, either the employer or the client can have the right to terminate the contract by giving a period of notice.

10. Have you replaced a permanent-employee position?

If you have replaced a position formerly occupied by a permanent employee then it will be nearly impossible to explain to a court why it does not fall within IR35. So make sure that when taking on any new contract that you find out if you are replacing any permanent employee.

11. Are you receiving payments at regular intervals and of the same amount?

If you receive payments at regular intervals and of the same amount then it might suggest that you are working like an employee. Though this factor alone cannot decide whether you fall inside IR35 or not.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.