IR35 Status Determination

IR35 Status Determination

Now that April 2021 has passed all new contracts need to be evaluated against the IR35 criteria, and a determination made if your contract is inside or outside of IR35, once this determination is made all parties get a copy of their status determination statement this document shows the reasons behind the status decision.

The introduction of IR35 has brought with it a mini industry made up of Umbrella payroll companies and many sites offering Individual IR35 determination tools, the quality of these is varied, with some offering insurance to cover any penalties from HMRC if they are found not to have been compliant. 

HMRC themselves have introduced a tool called CEST or Check Employment Status for Tax, click the link and try it for yourself, the tool indicates that HMRC will stand by any determination made using it, provided you save and download a copy of the form and the result,  CEST has however been involved in legal cases where where their determinations have been challenged, so whilst helpful as a guide, care should be taken as it only asks limited questions and therefore can not cover all situations.

If your contract is inside IR35 check our Ltd company vs Umbrella payroll calculator to understand how that impacts on your take home pay.

Taking a role with FD Capital and IR35

The type of role you are engaged to undertake is the key here.

CFO or FD Role

If you take a role which is to act as a CFO or FD then you will fall within IR35 as both of these roles are office holder roles as far as the legislation is concerned.  Here is a screen shot showing one of the first question the CEST tool asks:-

Cest tool 1

Workers Duties.

Will you be an Office holder?

This can include a board member, company secretary or company director.  If you are presented to external parties as an office holder it doesn’t matter that you are not shown on companies house.

It doesn’t matter if the role is part-time, interim or permanent as the role you will be performing is that of an office holder.

If the answer is Yes then the answer is immediately:-

Cest 2

Off-payroll working rules (IR35) apply

Why you are getting this result

You have completed the tool as if you are the worker. In the ‘Worker’s Duties’ section, you answered that they will act in an official position for your client.

This means they are classed as employed for tax purposes for this work.

If your determination is that your role is within IR35 then there are two options, either you are taken on through the clients payroll and paid your agreed day rate via their PAYE, or we use our Partner Umbrella payroll provider – Clarity Umbrella Ltd who then make the PAYE deductions on your behalf and pay you or your personal service company your day rate after deductions, you will be entitled to holiday pay in the usual way.

If you need an illustration of your take home pay personalised to your circumstances, then they have a take home pay calculator here.

If your role is that of a consultant, then provided certain criteria are met the role may be inside or outside of IR35.

Here is an example of the answers that show a role to be outside of IR35.

Cest 3Does the client have the right to reject a substiture?

This is important, and our outside of IR35 contract is written to make it clear that a substitute will be provided.

We are providing a service, in which you as the contractor are the preferred provider, but if you are unable to provide the service, another contractor will in your place.

So the answer here is “No”

 

Cest 4Would you have to pay your substitute?

Again this is important, you only get paid if you provide the service, if another contractor provides the service they get paid instead.

 

 

 

Cest 5Does the client have the right to move you from the task orignally agreed to?

A worker taken on for general tasks, might be moved as priorities change.

This is less relevent for a consultancy role, but the role can’t be changed unless you agree or there is a new contract.

 

 

 

Cest7

Does the client have the right to decide how work is done?

As a contractor you make the decisions

 

 

 

 

Cest8Does the Client have the right to decide your working hours?

No you and the client agree on those, as it has to be fair for both parties.

 

 

 

 

Cest 9Does the client have the right to decide where you do the work?

Our contracts are based on remote working, from time to time it may make sense to attend meetings in person but that is at your descretion.

 

 

 

Cest10Will you have to buy equipment before your client pays you?

You provide your own laptop and if remote based your own PC, which of course are tax deductables.

 

 

 

Cest11Will you have to fund any vehicle costs before your client pays you?

This is not applicable so the answer is No.

 

 

 

Cest 12How will you be paid for this work?

We work on a day rate basis.

 

 

 

Cest13If the client is not happy, would you have to put it right?

That goes without saying, our clients expect work to be at the appropriate standard.

 

 

 

 

Cest14Will you have management responsibilities for your client?

A consultant provides advice and does not assume management responsibility.

 

 

 

Cest16How would you introduce yourself to your clients customers or suppliers?

This is another area where care is needed, your client email address should for example include the phase “contractor”

 

 

 

 

Cest17Does this contract stop you from doing similar work for other clients?

A lot of our work is part-time or Portfolio the idea being to provide services for multiple clients, making it affordable for each client.

 

 

 

Cest18Will this work take up the majority of your available working time?

Again a lot of our work is part-time or Portfolio the idea being to provide services for multiple clients, making it affordable for each client.

 

 

 

Cest19Have you done any self-employed work of a similar nature for other clients in the last 12 months?

This questions favours portfolio candidates.

 

 

 

These answer together than give an outside of IR35 determination

Cest

As you can see this gives an outside of IR35 determination, the biggest factor being that a substitute is or would be acceptable to the client, but there are other questions would could change the answer.

So as you can hopefully see, a contractor working as a consultant can be outside of IR35 provided care is taken with the contract wording and the client and contractor both appreciate the boundries.

 

 

 

Can I be both inside and outside of IR35?

The answer is yes, if your role is made up of multiple tasks for example, you provide your services as a CFO or FD that will be inside IR35 but at the same time you provide E-Commerce or Search Marketing advisory consultancy that will be outside of IR35.  We handle these hydrid assignments and have two contracts that cover the different work streams.

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