How to check if your consultants are IR35 compliant

Don’t let the imminent IR35 tax changes put you off hiring freelance consultants, says Mirel Baila. Follow this 4-point checklist and stay IR35 compliant

Are you IR35 compliant? The government may have announced a review into IR35, but that’s only about implementation. IR35 is definitely being extended to mid-sized and larger companies in the private sector this April.

Although the new, stricter rules for hiring consultants and contractors are coming into effect — to stop contractors when it comes to tax being, for all intents and purposes, full-time employees – they shouldn’t put you off from accessing the specialist skills and knowledge which consultants and other skilled individuals can bring to your company.

>See also: Business Compliance – 5 things to know to ensure your business is compliant

Avoiding the pitfalls of IR35

When hiring an outside contractor or a consultant, a company doesn’t currently have to use PAYE or make national insurance or pensions contributions. Neither do they have to offer a contractor any standard payment protection such as sick pay or holiday pay.

In the same way that business owners have been able to use this system in their favour, many contractors themselves have also used their position and status as either a freelancer or a sole trader to avoid paying income which they would have normally had to pay.

How the IR35 rules will affect employers

Under the proposed new IR35 rules, an employer could no longer use consultants and contractors as a way of staffing their business in a tax-free way. You could face penalties if HMRC thinks you have been abusing the system.

How to check if your consultants are IR35 compliant…

To help you tread the right path in the eyes of the law, you need to be sure that when you hire a consultant or contractor, they are clearly recognisable as an independent contractor and cannot be classed as an employee according to HMRC rules.

It can be a bit of minefield for a business owner to navigate, but the hiring process can be made clearer by following this four-point checklist:

  1. Check your consultant’s other client list
    Make sure that the consultant you want to hire has a portfolio of other clients on their books. Be careful here because if you are seen by HMRC to be providing greater than 90 per cent of a consultant’s work, you will effectively be classed as their employer.
  2. Define your working practices
    Make sure that the wording of your contract with your consultant is compliant with IR35 legislation. The contract should reflect the way the consultant will carry out their duties – or their “working practices”. A contractor will be expected to sign a contract to provide a fixed amount of work, invoice you for the work, and be paid for the work carried out.
  3. Exercising control
    Make sure that you draw up a working contract that doesn’t imply that you have any direct control over your hired consultant or that they will need to follow any working practices in the same way as a normal employee. Make it clear that your consultant will have no direct supervision and will be able to clarify when and where their services will be provided. Your hired contractor should also not feel like they are becoming part of your company after working with you for some time. This means that they shouldn’t attend your regular staff meetings or be granted any company perks that regular employees benefit from, such as subsidised gym memberships, high-street vouchers or company discounts.
  4. Provision of tools and equipment
    Normal company employees will bovided with the necessary equipment needed for them to perform their job. However, a self-employed consultant will be expected to provide their own tools and equipment. You should also make sure not to offer or include contractors on any company training courses that regular employees would be expected to complete. An independent contractor would be responsible for their own training, running costs, materials and equipment.

Other ways to check if you’re IR35 compliant

Does your freelance contractor have the following?

  • Their own website
  • Business stationery
  • Professional indemnity insurance
  • VAT registration

…and three ways to hire consultants safely

It is quite understandable that business owners need to access a range of expert talent to help plug the gaps in their skills and knowledge whenever there is a need. This is why so many SMEs turn to professional help in the form of expert consultants and why the consulting sector is so large with over £60bn a year being spent on hiring professional services.

So, what can SMEs do to get the specialist help and advice they need at a price they can comfortably afford? We have three suggestions that can help your business to succeed while still staying IR35 compliant:

  1. Source from within
    Talk to your own employees. You may find that you already have staff with the background knowledge and skills that you need for a particular project. This can be quite a cost-effective move as long as you can cover the staff members regular duties while their time is being diverted to your new project.
  2. Reach out to your network
    Do you have any family, friends or old work colleagues that you have a good relationship with that can help? There may be someone suitable from your old university that you are still in contact with. Check your LinkedIn network too for potential connections that may be able to help.
  3. Get help from an expert network
    Hiring a consultant that perfectly fits your needs has now been made much easier through expert consultant network platforms where you can post your particular challenge to a large network of qualified and experienced consultants. You can discuss your needs with suitable candidates without committing to anything or costing you a penny.

Mirel Baila is co-founder of Consulthon, a UK management consulting expert network

Further reading

IR35 guidance: a guide for employers using self employed workers


Mirel Baila

Mirel Baila is co-founder of Consulthon, a UK management consulting expert network.

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