IR35 Contract Review - Why do contracts fail IR35?

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IR35 Reviews - Why have your contract reviewed?

The main IR35 criteria and the reasons your contract might fail IR35…

The information below provides some guidelines on the main IR35 criteria and discusses possible reasons why your contract might fail IR35.

Reason 1: Background/Previous Ruling

In this situation HMRC has already reviewed the client’s records and advised that all future contractors should be treated as employees.

Reason 2: Contract

The contract is not genuine and has been copied from someone else or is a “do it yourself IR35 Contract”. These can easily be spotted by the Revenue and disregarded as not being “a Live Contract”.

Reason 3: Mutuality of Obligation

The client expects further work from you after the current contract. With regular work and “rolling Contracts” the Revenue will argue that you are an employee of the client.

Reason 4: Control

Clauses in the contract show that you have to regularly report to the client. The more control is mentioned in the contract, the more the Revenue will believe you are employed and not self-employed.

Reason 5: Substitution

The substitution clause, if present, is not genuine and has merely been added to “protect the contractor”. You have not discussed possible substitution with the substitute.

Reason 6: Financial Risk

The contract does not show a price for the work and an approximate date for completion. It simply states you will work a set number of hours per week for an hourly rate.

Reason 7: Equipment

You only use the client’s equipment, indicating a lack of financial risk. [This isn’t one of the main points but worth considering.]

Reason 8: Part and Parcel of the Organisation

Your contract stipulates you have your own office, report to a manager and have access to all the client facilities. You have become integrated into the client’s business.

Reason 9: Intention of the Parties

The contract does not stipulate that the agreement is between a self-employed contractor and the client.

Conclusion

These are the main IR35 criteria that could result in your contract failing IR35. Remember there is no single reason, or a points system used for failing. HMRC considers the ‘whole picture’.

This article is not professional advice. It is recommended you seek professional assiatance when reviewing your own circumstances.

Source: Contractor Calculator website