In the world of off-payroll working, aka IR35, there’s a lot of misinformation about “status .determination and what you or, since April 2021, your client has to take into consideration when deciding if a contract is inside or outside. This decision will have a substantial effect on how you’re engaged buy the client, so it’s really important to get it right.
The six IR35 factors are:
- Mutuality of obligation
- Control
- Personal service
- Organisational integration
- Financial risk
- Equipment and materials
These factors are used to determine whether a you’re effectively an employee or self-employed for tax purposes. If a the contract meets all six factors, you’re likely to be considered an employee. However, if the contract doesn’t meet all six factors, you may still be considered an employee if it meets the majority of the factors.
In detail
Mutuality of obligation: This factor refers to the relationship between the worker and the client. If the worker is obliged to provide their services to the client and the client is obliged to pay the worker for their services, then there is mutuality of obligation.
Control: This factor refers to the level of control that the client has over the worker. If the client has a high level of control over the worker, then this suggests that the worker is an employee.
Personal service: This factor refers to the requirement for the worker to provide their own personal services. If the worker is required to provide their own personal services, then this suggests that they are an employee.
Organisational integration: This factor refers to the extent to which the worker is integrated into the client’s organisation. If the worker is integrated into the client’s organisation, then this suggests that they are an employee.
Financial risk: This factor refers to the level of financial risk that the worker bears. If the worker bears a high level of financial risk, then this suggests that they are self-employed.
Equipment and materials: This factor refers to the ownership of equipment and materials used by the worker. If the worker owns their own equipment and materials, then this suggests that they are self-employed.
It’s important to note that the IR35 factors are not determinative of employment status. The final decision on employment status is made by HMRC and, ultimately, the Courts. If you’re unsure of your employment status, it’s important to seek professional advice.