The Weak Under-Belly in IR35 Status Determination
Contractor UK recently published my article: IR35: Contractors, it’s time to switch your business head on. I was compelled to contribute the piece as a result of a growing awareness that many of us contractors feel powerless to influence the whim of clients that have, possibly somewhat understandably, essentially turned away from embracing the responsibility for IR35 Status Determination.
I say understandably, because if contractors aren't being presented to clients as businesses, either by themselves or by their agents, realistically is it reasonable to expect a client see them as a business? It's a difficult balance to strike when pursuing an engagement you really want, but in conjunction with your agent, if you're being asked to go via an umbrella, why not at least respectfully try to demonstrate that you ARE a business owner that has taken some responsibility to ensure clients can safely buy from your business and not from you personally? How can you demonstrate this? By being a member of 34square, bringing with that membership an arguably best-in-class and most client-friendly IR35 Status Assessment tool and process, and having a robust, evidenceable substitution capability, plus the option to bolster the evidence of the right to do so.
I'm seeing more and more experts in the field talking about the role of the right of substitution, and emphasising that it MUST be real; that lines in a contract are insufficient. Some clients will be aware that lines in a contract aren't enough. And if they don't know there's a company out there that provides a full end-to-end, fast, efficient and client-friendly, more-than-compliant IR35 status determination service AND renders those clauses real, then why would they embrace right of substitution and put you outside?
Contractors and agents... why not seize the initiative? Don't wait for the chosen assessment provider and the IR35 status coin toss. Step in and have your say. Even if a chosen status assessment service judges you outside, if that's right of substitution based, you're potentially placing the client and the future of outside IR35 at risk, unless you have a demonstrable capability to carry it out to the letter of HMRC stipulations. Lines in a contract with nothing to substantiate them are potentially worse than no lines at all, because they are the weak under-belly for HMRC to attack, and begin to dismantle the whole status conclusion.
Clients can and will keep engaging contractors outside IR35. Many that have stopped really can start up again. To do so, they need to know that they can confidently embrace outside IR35. They need to see that the contractor is helping them to embrace the responsibility. They need to NOT see HMRC tribunal victories because the right of substitution clause was deemed fake.
Those contractors that own or are considering operating through limited companies, don't just think about the services you offer, about selling your skills. Think about HOW you'll sell them; about your go-to-market strategy; about making it more palatable for clients to buy from that company and not from you. If the professional contractor community remains reluctant to properly think about and speak out about how to make it easier for clients to buy from their limited companies, then in the next five or 10 years, outside IR35 may dwindle to being an exception, despite the fact that for probably millions of engagements over that period, it should be the rule.