HMRC are still challenging taxpayers under the IR35 rules, and such disputes can take years to reach the tax tribunal in order to resolve the matter. If your client is at risk of an IR35 challenge, it’s worth checking whether the following indicators of employment exist in their case:
Mutuality of obligation
If the contractor is obliged to take up any work offered under the contract, and the engager is obliged to pay the contractor whether or not the work is performed, this is a clear indicator that there is a mutuality of obligation. This is a cornerstone of an employment/ employee relationship.
No substitution
Where the individual is performing a role because of their “star quality”, the engager may insist that the worker can’t be substituted by another person. In this case it is clear that only a personal performance of the task is acceptable, that is what the engager is buying. This is a strong indication of an employment; a contract of service rather than a contract for services.
Control
Independent contractors like to think that they not controlled by the engager, but you need to question the detailed rules which they work under. For example, is the worker required to wear a uniform, or forbidden to wear certain items? Is his other commercial activity restricted where it could conflict with his work for the engager? Does he have to keep away from risky leisure activities?
All of these restrictions point to controls over the contractor by the engager, in a similar fashion that an employer may place controls on an employee’s behaviour.
Expenses
Is the contractor expected to bear all of their traveling and accommodation expenses? If the engager books and pays for hotel accommodation where the work is performed off-siter, or pays directly for transport to the engager’s workplace, this is an indication of an employment relationship.
To maintain an independent relationship the contractor should book and pay for any travel and subsistence, even if he later charges that cost on to the engager.
All of the above indicators of employment were present in the case of Eamonn Holmes’ contract with ITV, which was found to fall within the IR35 rules.