Article written by Susie Hughes – Shout99
I recently had a call from a firm of accountants who had reached an impasse with one of their contractor clients. They felt he was inside IR35; he felt that he could make a case he was outside. Unable to convince them that he had a case, he suggested they contact Shout99.
As the freelancer saw it, he ran his own business; took risks; didn't get holiday pay, sick pay or other benefits from his client; marketed his services; and kept his skills up to date. He felt he was a genuine business and outside IR35.
As his accountants saw it, he worked from his client's premises; didn't have a right of substitution; and used his client's equipment. They felt he was a 'disguised employee' and inside IR35.
This situation serves to illustrate the level of uncertainty which, even after four years, still surrounds IR35.
IR35 is a badly drafted piece of legislation. What most businesses - small or large - want from the Government is certainty and clarity. Yet the rules on which IR35 are based are neither, as evidenced when an accountant and their client still can't agree on his status. It is hard to imagine that multi-nationals would have tolerated such a piece of tax legislation which affected them in this way.
On the plus side, the 'right of substitution' and 'lack of mutuality of obligation' are two key factors in proving you are outside IR35. However, the exclusion of either or both in a contract does not necessarily mean a contractor is inside IR35.
There has not been a clear definition of this mythical creature which the Government has categorised as a 'disguised employee'. Neither has the Government explained what it means when it frequently refers to wanting to target its assistance at 'genuine or real small businesses'.
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