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The Outside IR35 Mindset

IR35

Usually, when we talk about determining IR35 status, being “in business on your own account” is classed as a secondary factor, meaning it’s generally seen is less important than the three primary factors, Control, Mutuality of Obligation and the right to substitution.

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However, on another level, whether you’re in business on your own account is the main thing an IR35 determination is designed to find out. If you’re genuinely running your own business, you’re clearly not an employee – disguised or otherwise, but it’s easy to forget that when you’re focused on ticking all the technical boxes.

Focusing on the idea that you’re running your own business encourages you to think in the right way, and if you get that right it’s likely that everything else will naturally fall into place.

It’s as simple as it sounds

For those who are used to a complex shopping list of technical requirements, this idea looks deceptively simple; to be outside IR35, you just have to be running your own business. But just because it’s simple, doesn’t mean it’s easy to achieve, or that anyone can do it.

How do you know if this applies to you?

The important question to ask is whether your limited company is a genuine business, or just a vehicle through which you get paid, and in most cases this will be obvious in the way you operate. For example, as well as undertaking paid work for your clients, you’ll find yourself:

Marketing your company

Do you have a company website, and are you using it to generate business? Do you know how your clients use social media, and are you building a presence on those platforms? Do you find yourself researching marketing techniques or designing adverts? Could you answer the question, “what are your brand values?”. Do you have a company logo?

Seeking new business

Do you spend time developing your network of contacts? Do you have a defined process for sourcing new work? When seeking a new contract, are you likely to be writing a proposal and making a pitch, rather than sending a CV and attending an interview?

Investing in your company

Have you purchased specialist equipment? Have you invested in training to unlock a new market or help you compete? Are you keeping some of your profits with an eye on future investments? Have you bought insurance to mitigate risks to your company? Have you bought a better computer, software or online subscription to improve productivity?

Growing your business

Have you thought about how you would scale up your operation? Are you considering alternative income streams, like creating an app or recording online training courses?

If any of this sounds familiar, it’s very likely that you’re running a business, and there’s a good chance that you’ll be outside IR35.

How does this translate into your IR35 status?

At the beginning of this article, we mentioned the three primary factors that an IR35 status determination will look at. Since they will be important in determining your IR35 status, it’s worth looking at them in relation to this “outside mindset” concept. It’s important to remember that no one factor will determine your status on its own, and there are other, secondary factors that may be considered too. 

Substitution

The question here is whether you have to provide services yourself, or if you have the right to have a substitute do the work instead. Substitution is more likely to make sense if your client is outsourcing to your company, rather than hiring you as a resource. In other words, is their relationship with you, or with your business?

Control

This is the extent to which the client has the right to control what you do, and when, where and how you do it. Again, a client who has hired a business is less likely to want or need control of particular tasks, the specific methods used, or details like where and when the work is completed – except as they affect their own specific needs and plans.  

Mutuality of obligation

This is the extent to which the client is obligated to provide further work, and you are obligated to accept work when offered. In a business to business relationship, you’d expect your client to hire your company for a specific reason, and for the relationship to extend no further.

The client may need your services again, but any future business would rely on their need and your availability. You’d expect the details of the contract, including price and timescales, to be negotiated separately each time. You would be free to turn them down, and they would be able to engage an alternative company if they choose.

Thinking and operating like a business owner automatically moves you away from looking like an employee, and makes it far more likely that you’ll be outside IR35.

Demonstrating that you’re a business owner

After the reform of IR35 in April 2021, it’s likely that your clients will be responsible for determining your IR35 status, and it’s therefore important that they see you as a business owner rather than a temporary employee. There are a number of things you can do to make sure they get this message.

If you have a company logo, use it wherever you can. Branded merchandise is easy to obtain and relatively inexpensive, so you can use branded notebooks, pens and mugs to put your company name in front of your clients wherever possible. It’s also a good idea to use your logo in your email signature, use your company name when introducing yourself to new people at the client, and share your contact details using branded business cards.

You might also invite hiring managers and other client contacts to connect with you on social media, and ensure that your profile and pages are branded.  

If you have any questions or if we can help in any way, please call our expert team on 01296 468 483 or email info@orangegenie.com.

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