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Why Limited Company Contractors Need Evidence of Their IR35 Status

IR35

From April 2021, most contractors who trade through their own limited company will lose the right to determine their own IR35 status. This responsibility will pass instead to their end client, who may or may not understand what’s being asked of them, and may or may not be willing to invest the necessary time and resources in doing it correctly. While industry experts continue in their efforts to educate and prepare as many end clients as possible, what can you do to protect yourself if you know for certain you’re outside IR35?

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Gathering evidence of your IR35 status

Your end client will be concerned with controlling the risk to themselves, and if they incorrectly determine that you’re outside IR35 they could be liable for unpaid tax and penalties. If they’re well informed, they will want to engage with your limited company on the basis that you’re outside IR35, but only if you actually are. If you have evidence of your status, this could go a long way to convincing your client that they can safely determine your status as outside.

Get a professional opinion

A professional review from an independent IR35 expert is a good place to start, and it’s already best practice to get each new contract reviewed. Your review may also point out any areas of weakness, and suggest actions you can take to remedy them. A report from an independent IR35 expert giving your status as outside IR35 will act as strong evidence for your end client.

Gather evidence of your working practices

Status determinations must take into account your written contract, and your working practices. However, it can be difficult to argue that the day to day reality supports your status if you have no evidence of it. ­­­You should build up your evidence file as you go along, routinely keeping documentation that supports your status. For example:

  • Create and maintain a list of other contractors who have agreed to act as a substitute for you if needed. Exchange emails with them to evidence their willingness and agreement to the commitment.
  • Add a location to your timesheet and retain emails sent to your client stating that you’re working from home or remotely.
  • Document in writing any defects you are required to rectify and the cost to you in time and day rate.
  • Send and retain written communications chasing invoice payments.
  • Ask happy clients to provide testimonials to appear on your website and aid your marketing activities.
  • Prepare a bid to appear on your end client’s preferred supplier list.

Check Employment Status for Tax (CEST)

If your end client is intending to use CEST as part of their IR35 process, it may be advisable to complete it yourself, if only to find out what it says. However, it’s important to realise that it uses HMRC’s interpretation of the rules, which often differ from the courts, and you don’t have to accept the status it gives you. If CEST determines that you’re inside IR35, you should look at why and carefully check your position, rather than accepting it as true.

Other reasons to evidence your IR35 status

Even if your end clients are all on board and happy to accept that you’re outside IR35, you still need to follow this advice. If you’re contracting in the Private Sector, you are currently responsible for determining your IR35 status and liable for any unpaid tax and NICs if you get it wrong. HMRC can and do challenge contractors on their IR35 status, sometimes years after the contract is complete. Gathering this kind of evidence is a necessary precaution to protect you should HMRC investigate your status is years to come.

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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