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Markel Tax

01 Dec 2020

Why end-client businesses should make their IR35 decisions now

IR35 decisions can be made now

End-client businesses which engage contractors (whether directly or indirectly via agencies) must determine whether or not they are medium or large sized businesses for the purposes of the IR35 legislation. If they are, they must make a decision as to whether engagements fall within IR35 or not.

While you do not have to issue a formal Status Determination Statement (SDS) before 6 April 2020, if you choose to do so, then it will be valid from 6 April.  Either way, it is imperative you examine your contractor workforce and gather the information needed to make a decision on IR35.  To do this will require knowledge about IR35 (and much has been written by us and others on the fundamentals of IR35), otherwise you won’t know what information needs to be gathered.

IR35, at is core, seeks to establish a hypothetical contract between the worker at the bottom of the chain and the end-client at the top – effectively it says: “if there was a direct contract between the worker and the end-client then would that contract be one of employment or self-employment?”

In order to draw up this hypothetical contract, we have to look at everything, which is relevant to the provision of services, which currently exists between the worker and the end-client.  This requires looking closely at contracts and working practices.


This means all contracts in the supply chain.  If it is a direct engagement, this will only be one contract between your business and the contractor’s company, but if there is an agency in the chain then the agreements between agency and end-client as well as between agency and the contractor’s company must also be considered (and if there are multiple agencies then there will be multiple agency contracts to review). 

There are two important points to be made about contracts:

  1. Written contracts are fundamental to IR35 status

They are vital to make an accurate decision on IR35.Contracts are written declarations by the relevant parties in the chain as to the rights and obligations which exist within an engagement.They cannot be set aside or ignored as simple “standard commercial” agreements that have no bearing.IR35 is a hypothetical contract, so it follows that a sound starting point is to examine the actual contracts that exist.HMRC will scrutinise the written contracts and for the courts, the starting point in any IR35 Tribunal is to examine the written contracts in detail.

  1. Wording is critical

In the event of an HMRC enquiry (or Tribunal Hearing), the wording of relevant clauses will be scrutinised carefully. It is important to understand fully what case law has determined as acceptable. Some notable examples include:

  1. The difference between a right to utilise a substitute and the right to propose a substitute

  2. Which factors do not overly fetter (restrict) a substitution clause and which factors do

  3. The importance of a right of control and whether additional provisions (such as compliance with guidelines and policies) create or imply that right of control

Often the phrasing of a clause, or the use of one word over another, can mean the difference between being employed and self-employed for IR35 purposes.

Working practices

This will be a review of what happens in practice on a day-to-day basis.  This is typically reviewed by completion of a working practices questionnaire. It is important that both the contractor and end client have sight of this questionnaire and can provide input on how the services are provided to ensure all relevant information is captured.  The working practices review is completed to establish that what is contained within the contract correct and reflects the day to day working.


Making a decision as to whether IR35 applies must include a review of both working practices and the specific written terms of the contracts.  It follows that if the courts require both to form an opinion on whether or not IR35 applies then an accurate decision cannot be made if one of these is absent from the review.  It would also follow, therefore, that valid SDS cannot be produced unless both have considered.

If you would like to discuss our services or insurance product in more detail, please contact David Harmer by email or call us on 0333 920 5708

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