How to Know if a Contractor is ‘Inside’ or ‘Outside’ IR35?

How to know if a contractor
is ‘Inside’ or ‘Outside’ IR35?

There are three types of employment status: 1. Employee
2. Worker 3. Self-employedEmployeeAn employee is an individual who has entered into or works (or worked) under the terms of a contract of employment. The contract can be expressly agreed (in writing or orally) or implied by the nature of the relationship. To have employee status:

An individual must be obliged to do the work personally (rather than being able to send a substitute/locum)

The employer needs to be obliged to provide the work and the employee is obliged to accept the work

The employer needs to have some control over the way the employee carries out work.

WorkerWorker status is sometimes seen as a ‘half-way house’ between employee and self-employed status. Workers are entitled to fewer statutory rights than employees, but do have some key legal rights, including:

Protection from discrimination

Protection against unlawful deduction from wages

Entitlement to the national minimum wage.

Self-employedTo be truly self-employed HMRC will consider a number
of factors including:

A self-employed individual needs have a written agreement in place. If no written agreement is established an Employment Tribunal would consider this individual to be an employee

A self-employed individual should be able to determine when and how they work. This would include the days and hours

A self-employed individual should not be obliged to accept all work which is offered

There should be no obligation for the services to be carried out personally and there should always be the right to appoint a locum

To be recognised as self-employed the individual must ensure they receive no statutory employment rights (although they may be protected by discrimination law)

Self-employed individuals should not be participating in benefit schemes

Self-employed individuals should not be paid overtime

Self-employed individuals should not be integrated into the business

Self-employed individuals should not perform similar services to those performed by employees

Self-employed individuals’ person should provide their own equipment in order to perform the services

Self-employed individuals should be responsible for any losses arising from their work and be required to correct any unsatisfactory work in their own time and at their own expense

Self-employed individuals should be responsible for payment of their own income tax and National Insurance Contributions (NICs).