Worried About Switching Current Client from Inside to Outside IR35?
Are you inside IR35 in a current engagement? Worried about the risk of getting it switched to outside IR35? Perhaps HMRC will target the switchers? They might. And there's been a lot of social media conjecture that you're at greater risk if you stay with a client and switch, so you might be well-advised to go find another client. I feel inclined to contend this notion.
What matters is what you do in order to execute a switch within your current client. What HMRC must do is analyse the attributes of a given contractual arrangement. If you are going to switch from inside to outside in a current client, you will need to terminate your existing contract and sign a new one, with a different party involved, namely your limited company. All HMRC can do is evaluate that new contract and the associated engagement attributes and working practices.
Now, if ALL you do is generate a new contract, with no IR35 status assessment conducted, concluded outside IR35 and evidenced, and no addressing of any working practices or rights that would conflict with that assessment, then of course you are at risk. But you are no MORE at risk than with a brand new engagement with a brand new client, in that you need to take all of the same steps. You should get a robust outside IR35 contract. You should conduct and store a robust assessment. You should ensure working practices will and do align with your responses to questions in that assessment. You should probably check with your client if there are any you think they may want to discuss or dispute.
Your biggest risk comes from the place it has always come from; trying to be outside IR35 when you probably or definitely shouldn't be. If your engagement or role and your work contribution essentially form an integral part of ongoing business as usual, then that's the biggest red flag. I've seen PMO managers of a permanent internal project organisation operating outside IR35. Software developers that, essentially indefinitely, fulfill a steady stream of work that's part and parcel of running the day-to-day business, as opposed to a one-off transformational contribution in a project with a finite end. Interim managers is classic. You're temporary, so it's a slam-dunk for outside IR35, right? Wrong. This is possibly the most risky area of all, as by definition, you are fulfilling a role that is NOT temporary, making a contribution that is NOT temporary, that IS part and parcel of the organisation and of normal business as usual, that lives on irrespective of whether you do it or not. That's not to say you couldn't provide some similar services with a different emphasis and relationship to the organisation, in a scenario where you are delivering a specific change, beyond which you will no longer be needed. Then you might be able to operate legitimately outside IR35, but you shouldn't act as or be called an interim manager.
Statements of Work were touted at one time as the holy grail of outside IR35. They're definitely useful if they properly reflect the reality of the engagement and there aren't major red flags elsewhere in other drivers such as mutuality of obligation, financial risk or part and parcel. On their own, they don't push you over the line. It's pretty easy to concoct a Statement of Work for any work contribution.
Still the most powerful singular driver of outside IR35, albeit we do not suggest you rely solely upon it, is an unbreakable right of substitution, because it legally removes any notion of personal service and renders the engagement a contract for services as opposed to a contract of service. The challenge has always been how to make it unbreakable and not simply a sham. No longer a challenge if you join 34square. Read this blog: Even Stronger Than the 10 Out of 10 Cases HMRC Lost...
So can you stay with your current client and switch from inside to outside? Sure you can, if you robustly take all of the steps you would anyway with a new client, and if your engagement can properly qualify to be outside. And 34square can take you a long way there with our assessment tool and the watertight substitution capability we provide you with. We've also thrown in some gotchas to look out for in your contracts. And if you want to use statements of work we also have a comprehensive, flexible template for that, complete with eSign option.