In recent years, there has been a growing concern among contractors with a variety of clients to be able to demonstrate that they are "outside" rather than "inside" IR35. IR35 is the part of tax legislation which aims to ensure that employers aren't evading their responsibilities to pay tax and NI contributions for employees (as well as provide them with other, statutory employee benefits). It's also intended to prevent contractors enjoying an unfair tax advantage by posing as independent providers, when, in fact, they are employees in all but name.
HMRC has been vigilant in cracking down on IR35 compliance in the past few years. This has meant that some contractors have retrospectively been found to be "inside" IR35, and therefore are required to pay significant amounts of tax arrears. Similarly, employers have been forced to pay large sums of unpaid NI and tax for contractors who were treated as external agents but who, under the tests of IR35 eligibility, proved to be employees. As a result of IR35 legislation, employers are keen to be clear that they are recruiting an independent contractor for work, rather than an employee. Frequently, recruitment is the point at which a prospective employer will seek to determine whether a contractor falls "inside" or "outside" of IR35 legislation. Here we take a look at creating a CV for contractors following changes to IR35, which should clearly demonstrate the contractor (rather than employee) status of the applicant.
An employee has a name!
When a contractor applies to complete a piece of work, a key feature of their application is that there usually won't be a named individual to undertake the work. Whilst the contractor will stipulate that they will provide the necessary services, it should be the contracting company which delivers the services, not a particular individual. Even if an applicant is self-employed, the CV should still be focusing on the resources the company has to deliver the work, rather than the competency of a specific, named individual. In contrast, an employee CV will clearly be written regarding the individual and the individual strengths and abilities they bring to the table.
Your time is your own!
A contractor isn't normally expected on-site at a regular time each day; they aren't contracted for x number of hours each week. Their movements will only be constrained by the nature of the services they are offering. For example, if a contractor is writing a service delivery plan for an organisation, how, when and where they complete it is up to them. Provided it is delivered on time and to an appropriate standard, there is no need for further elaboration. An employee will be expected to work set hours and will usually have a number of hours which they are required to work each week or month.
The scope of works limits the time frame
An employee will have a time frame for their contract. It may be permanent, temporary or fixed-term, but duration will be a factor. In comparison, a contractor is only required to complete the required work. There is no expectation of duration. Whilst a contractor may provide services for a long period of time to a company, a contract with a contractor will normally include regular break clauses or contract renewals. Similarly, a CV should focus not on an expectation of on-going employment, but on completion of the relevant work.
A contractor will have a business!
Although contractors may be a single, self-employed entity, the argument that they are "outside" IR35 is much stronger if they are set up as a business. This will include being registered with Companies House, having a corporate bank account and, potentially, having additional clients. The more characteristics of a business a contractor is able to demonstrate in their CV, the easier it is for HMRC to see compliance with IR35 guidance.
Businesses have premises
Any written communication regarding the submitted CV should ideally be sent to the contractor's business premises, not a personal address. Contractors will normally have a business email, may have a social media presence and will frequently advertise their services elsewhere, not just to one potential employer. Whilst it isn't essential to have premises (some businesses operate remotely, or have a physical address, but not actual premises), it is one more way of differentiating a contractor from a potential employee.
All of the elements above, when taken together, give a clear indication that a contractor is a bona fide business, rather than a contractor in name only. Obviously it's perfectly possible for a contractor to not have all the characteristics listed above, and still retain contractor status. If there are question marks around specific parts of a CV, these can always be discussed and clarified at an interview. If you are a contractor and are concerned by your ability to clearly demonstrate that you are "outside" IR35, it's always worth taking some professional advice on improving your CV. An expert in IR35 application will be able to highlight any areas which could potentially lead to IR35 compliance questions being raised. Similarly, if you are successfully appointed to carry out the required work, it's important that the contract you sign up to is clearly one intended for a contractor, not an employee.
The stakes for discovering at a later date that your business is operating "inside" IR35 can be high for both you and your employer. Increased focus on contracting and the need for businesses to clearly demonstrate independence from the employer means that getting a CV correctly worded in the first instance is vital. It's also important to take a clear look at what the employer is requesting. There needs to be no ambiguity that what is required is the provision of services, not the provision of a named individual to undertake the work: the principle of substitution is critical here: a contractor should be able to substitute one individual with another to get the job done. An employee, however, is a named individual who cannot be substituted.
For more information about off-payroll working rules for clients, workers (contractors) and their intermediaries, please see the gov.uk website.
IR35 Explained in Under 2 Minutes (courtesy of Crunch)
Time for the government to get behind small business and enterprise. Scrap IR35, keep Enterprise Allowance and cut business rares. Levelling up needs more entrepreneurs,not the politics of jealousy.— John Redwood (@johnredwood) March 8, 2020
Just emailed my accountant to start the process of shutting down my ltd company. @HMRCpressoffice you should be ashamed of yourselves. I operate outside IR35 and always have done. I cover holidays and sick leave. What am I supposed to do?! Vets and RVNs operate outside #IR35— Laura (@lauraleighwilk) March 3, 2020
Today we lost two good contractors to IR35, both are packing up and heading back to their countries of origin...so we asked is this because of Brexit...no they said..#IR35— Tree Holdings Ltd (@TreeHoldingsLtd) March 4, 2020