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Markel Tax

17 Dec 2018

IR35 parameters

My client runs a limited company with her husband, who is the lead contractor, does the technical work and provides services (the company sub-contracts others as required). The client is a company co-director but doesn’t work at the client sites. Her role is company admin, finance and tax plus business development. Is she at risk of being caught by IR35?

As your client’s role within the business does not include direct interaction with the company’s end clients, I agree the parameters of the IR35 legislation would not apply.

It appears that your client’s husband is not the only provider of ‘technical services’ to the company’s end-clients, as the company sub-contracts others as required. I presume the contract the company has with its end-client does not expect personal service (from your client’s husband) and allows for substitution and additional personnel to be supplied to fulfil the contract. This suggests the contract may not be one of service and would be outside IR35. 

A lack of personal service is one of the key areas to consider when looking at whether IR35 applies. The tax case, Express and Echo Publications v Tanton (Court of Appeal 1999) sums up the importance of this aspect when it states: “Where a worker who works for another is not required to perform services personally then ‘as a matter of law’ the relationship cannot be that of employee”.

The fact your client’s husband is not supervised is also crucial. Where it can be shown the end-client does not (and does not have the right to) exercise control, case law dictates the individual cannot be an employee. There are several facets to the consideration of control, but the most important element within that is whether the work-provider controls the manner in which the services are performed, in other words ‘how’ the individual performs the services. 

Along with personal service and control, mutual obligations are considered to complete the trinity of factors necessary to create the ‘irreducible minimum’ for the existence of a contract of employment.  If the client would like a more detailed opinion they may benefit from an IR35 contract review, which will take a holistic view, incorporating additional relevant components such as financial risk, and ‘in business factors’. 

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