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How to be outside IR35

How to be outside IR35?

A contractor working outside of the IR35 is someone who runs a genuine independent business and so falls outside of the boundaries of IR35. They pay their own salary, control their own books, are able to draw income as dividends, and are fully responsible for all taxes they need to pay to HMRC.

If you do come under investigation by HMRC for breaching IR35 they will pay closer attention to how you are working in practice than a paper contract. Normally, contractors can create compelling evidence about their IR35 status on a day-to-day basis. By gathering this and making it readily available to their professional advisers, if HMRC start an IR35 review, they can quickly stop any potential investigations.

You might not realise the importance of some events or think to collect all the appropriate evidence. However small an event might seem at the time, creating and maintaining an electronic dossier of evidence will be extremely beneficial to stay outside of IR35. Below are some examples of evidence you can use to help prove your contract is outside IR35.

1) You are sent home, but employees stay at work

If an unexpected incident occurs like the IT systems go down and you are sent home when all the employees have to stay, be sure to keep the email telling you. Keeping emails, announcements or policies that show the business is differentiating its treatment between contractors and employees will benefit you in proving you operate outside of IR35.

This implies a lack of Mutuality of Obligation (MOO) as it demonstrates the business does not consider itself obliged to provide you with work or pay.

2) Letting the business know you are taking time off, not asking them

By taking time off you are showing that you have a degree of control over your working time and are not within the boundaries of typical employee holiday time terms. However, it is important to be careful of how you speak to the client you’re working for about this, ensuring you are informing them of the time off and not requesting it. If you send an email informing the client you are taking time out of the contract, keep a copy of that email.

Timesheets and invoices also offer compelling evidence of having time off that you should keep. Gaps in payments and hours worked will show HMRC that you did not receive any holiday pay as well as proving that you were not providing your service during that time.

3) Having your own website

Not many contractors have their own website, but it can be a really useful tool when it comes to being outside of IR35. It is important to keep the site up to date, maybe by publishing a regular blog so HMRC can see that it is being used as a proactive tool for marketing and promoting yourself.

4) Tendering for contracts

Tendering shows in a clear and certain way that you are in business on your own account and that you are taking financial risk. You should keep records of the time you spend on the tender process. Even if you are not successful, having copies of letters, emails, confirmation of tender applications etc, will prove that you are operating outside of IR35.

For more in depth information about IR35 check out our guide titled ‘What is IR35?’        



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