What are the minor IR35 status tests?
Two weeks ago, the IR35 reforms came into effect - shifting the liability for IR35 status to the fee-payer. As previous IR35 case law shows, a holistic view of a contractor’s working practices is taken in the event of a tribunal, with their engagement placed under the microscope. A lot has already been written about the three main IR35 status tests; control, right to substation and mutuality of obligation (MOO), but there are also a wealth of minor tests which are integral when assessing your IR35 status.
All of these minor status tests could be considered during an IR35 tribunal and are featured as part of most status assessment tools (including CEST and Kingsbridge’s Status tool). In this blog, we take a look at some of the minor IR35 status tests and how they could be assessed.
Business in your own account
Having evidence that you are in business in your own account is one way to show that the contract is being carried out via a limited company, and therefore pointing to genuine self-employment. Things like having a company website, business stationery and office space would all work in your favour for this test.
As an external contractor that is operating outside IR35, you shouldn’t be getting the same benefits as an employee of the company. This means you won’t be eligible to get sick pay or holiday pay. You can of course take holiday and sick leave but should not get any financial gain for doing so. Contractors would normally not attend social events, but if you are asked to go to a client event like the work Christmas party, you should cover your expenses like food and transport. And if you’re going to visit your client at their offices, it’s best to park in a designated visitor space if available.
If you're operating via your own limited company and are genuinely self-employed, you should remain external to the end client. This means not partaking in employee perks, not accepting equipment like laptops and phone, and wearing a lanyard to be identified as a contractor wherever possible.
Termination of contract
If you decide to leave the project before the contract is finished, you should be free to terminate the contract. Being locked into a long notice period could be seen as being inside IR35. Generally, a notice period of 4 weeks or less is acceptable.
In the event of making a mistake, genuine contractors would hold the financial risk. If the mistake has resulted in a loss of income to you, this would be your financial burden to bear, as charging the client for your errors would indicate towards the contract being inside IR35. Holding business insurance, including professional indemnity and public liability, would therefore help show that you are labile for the financial risk of any errors you make.
Use of equipment
Using your business equipment, such as a laptop and mobile phone, would point your engagement to being outside IR35. Of course, like most status tests, there can be exceptions, e.g. if there is a security reason why you need to use your client’s equipment.
Statement of intention
This refers to the agreement of both the end client and the contractor that they are not entering into a contract of services (a contract between an employer and an employee). The contract should be a Contract for Services – one between two businesses. Nothing in the contract shall create an employer/employee relationship between the Service provider and the Client. Whilst not likely to be determinative in isolation, this can be used as a tie-breaker if everything else is in balance. Often this is demonstrated more in the contractual terms than the working practices.
This refers to whether you can provide services to other clients at the same time. For this test to point towards outside IR35, there should not be any exclusivity clause in your contract, and you should be perfectly within your rights to accept other work for another client.
If you are claiming expenses from your client, this would point towards your engagement being inside IR35. To be outside IR35 for this status test, any expenses that you claim should be at your financial loss and claimed through your own limited company.
As you are a contractor and not an employee of the company, your contract should have a clear end date. This could of course be extended but would need to be agreed upon by both yourself and your client. Again, the extension would need to have a clearly defined end date.
How can I check my engagement for the minor IR35 status tests?
If you would like to check how you would perform in the minor status tests, you could use an IR35 status assessment tool. Reputable IR35 tools typically include the minor status tests alongside the major status tests, as these can and do all come up in an IR35 tribunal.
One option available to you is Kingsbridge’s award-winning IR35 status tool. Developed by Head of Tax, Andy Vessey, the tool has been designed to give you a complete overview of your IR35 status. Once you have completed your assessment - which will be completed manually by one of our IR35 expert teams in the event of an indeterminate result, you will get a comprehensive report. This report will outline the strengths and any weaknesses of your engagement across the IR35 status tests. Get a status assessment today for just £50 plus VAT.