This instalment focuses on understanding the essence of what makes an engagement or a role outside or inside IR35. The following in no way constitutes specific IR35 status assessment advice, rather examines the spirit of the regulations.
Q1: Can I judge at face value whether or not a particular engagement likely warrants outside IR35 status?
A: Generally yes. If you’re sourcing resources for a work contribution to an overall program of work with an approximate or precise end date, beyond which that specific work contribution will not require the same or any other resource to continue performing the work, then there’s likely a strong case for outside IR35. Project or program managers, transition or change leads, technical or business consultants, testing professionals and many other resource types may fit this initial qualitative assessment.
Q2: If I have employees performing similar roles to a contract role, does that mean the contract role must be inside IR35?
A: Definitely not. Many organisations, for example, have permanent Project Management Offices or PMO’s, and employ project managers as part of that team. Those employed project managers will expect to be supplied with projects to manage for as long as they are employed i.e. they are there to fulfil an ongoing role for a steady stream of projects. They will also be expected to manage whatever projects their employer requests them to. There is a mutuality of obligation. The same organisation, however, can legitimately engage a contractor outside IR35 for a specific project. In such a case, that contract project manager would have no expectation of follow-on work on other projects beyond the one they were engaged for. This scenario can legitimately arise for a number of reasons, including a project type for which there are no qualified employees or even the pure and simple issue that the employed team cannot handle the capacity. A PMO manager, however, is an example of a role that is far less likely to qualify for outside IR35 treatment, unless the PMO itself is mobilised for a specific and time-boxed program of work beyond which it will be disbanded.
Q3: Can interim managers be outside IR35?
A: By definition, only the resource performing the role is temporary, not the role itself i.e. the specific work performed and purpose fulfilled by the interim manager continues to exist beyond the tenure of the interim manager. Interim managers often take over temporarily, a vacancy left by a departing employee. These cases are firm candidates for inside IR35. If the nature of the work contribution were defined and delivered in relation to a specific program of change, beyond which a sufficiently different work contribution would be required from a different resource, then it may be legitimate to source services from an outside IR35 contractor that should not be referred to or treated as an interim manager. Be sure to define the contribution precisely and then treat it accordingly.
Q4: Can I choose whether or not to treat an engagement as outside IR35 or inside IR35, based upon how I define its characteristics?
A: If the work contribution required is essentially indefinite, then you probably cannot legitimately choose. If not, choices can be legitimately made about HOW resources and services are purchased. Organisations and their hiring managers can make decisions about the characteristics and working practices of their contractor engagements, that CAN directly impact whether or not an engagement can qualify for outside IR35 status. The most obvious example of this is a client embracing a right of substitution in line with HMRC expectations. This is pure choice, and if supported with evidenceable feasibility to execute, can solely determine an engagement as outside IR35. There are further firm choices that collectively drive engagements firmly towards outside IR35; firm start and end dates; a clear description of services to be provided and / or expected deliverables as opposed to a role or job description; ensuring there is no line management responsibility of employees; contractor use of own equipment; acknowledging and embracing greater degrees of control of how, when and where a contractor’s services are to be performed or delivered, in comparison with levels of freedom granted to employees.
Q5: What if everyone sets out with a seemingly safe outside IR35 status, but then behaviours and processes during the engagement are not consistent with the original assessment, to the extent that the engagement could then be judged as inside IR35?
A: This is no doubt viewed by many HR and compliance leaders as the uncontrollable risk that defines their policy as essentially ‘no more outside IR35’. In realty, where an engagement is defined such that it is borderline inside or outside, it’s difficult to argue against this position. However, unnecessarily engaging contractors inside IR35 constrains and disrupts client acquisition and retention of top talent, penalises the UK contractor market and damages UK industry. It is entirely possible, even straightforward to derive a set of engagement criteria and working practices that are not dependent upon potentially unpredictable behaviours or processes, are sufficiently far from borderline to render that risk negligible, AND are beneficial not just from a pure client value for money perspective, but also from a quality and continuity of service perspective as well.
I’ll close with a simple example to demonstrates choice can be exercised in determining whether to source a piece of work as a contract of service and akin to employment or a contract for services and akin to self-employment / outside IR35. A school wall needs painting. This task could be assigned to a school employee, perhaps the caretaker. In this case the task is being performed under a contract of service. But that exact same task can also be legitimately outsourced to a freelance painter and decorator and performed under a contract for services. Precisely the same task and the school is at liberty to choose how they fulfil the requirement.
The task itself need not determine the IR35 status. Rather the chosen parameters controlling how the task is sourced can, in a great many cases, be the main driver. As a client engaging contractors either inside or outside IR35, if you have the legitimate choice, why compromise? Why pay more or pay your resources less? Why not demand the quality AND the value the way you do with the rest of your business?