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Solving The Mystery of IR35

Blanket contractor bans sent tremors through the market, but others need not follow suit. In fact, savvy companies could pluck contractor talent from their paranoid competitors if they are prepared to navigate the incoming legislative changes.

Let’s just remember that this new legislation is about ensuring that “disguised employees” are paying the relevant taxes, not squashing the momentum of the gig-economy altogether.

Whilst we won’t know how this plays out until D-day, we’ve put together a brief summary of the things hiring managers need to be aware of to avoid being made an example of by HMRC.

First things first; some terminology basics…

Inside IR35 – considered an employee and subject to PAYE

Outside IR35 – contractor can pay themself a salary and draw the rest of their income through dividends via a Ltd Co.

Now that’s covered, let’s get to the crux of this.

HMRC use 5 criteria to decide whether a contract is inside out outside of IR35. They are:


Who determines what, where, when and how the contractor does the work?

A genuine contractor is a specialist supplier of a service, rather than an employee. With this in mind, they have the right to determine the hours they work, whether they do so from home or a cafe, and how they prioritise the different tasks that make up the overall body of work.


Can the contractor substitute themselves with someone else who is also suitably qualified?

Specialist knowledge specific to their field and your business needs is one thing, but whether they are a strong values-fit for the business, popular around the office or in possession of lots of company secrets, shouldn’t really matter in the same way it would with an employee. At least in the eyes of HMRC.

Mutuality of Obligation

Is the employer obliged to offer work? Is the contractor obliged to say “yes” every time they do?

This one should be less of an issue for most private sector contractors who accept the uncertainty that comes with contracting.

For businesses, this quite simply means that they cannot expect an individual contractor to be on-call and available the moment they need them. Contractors have the right to pursue other work, turn down extensions or deployment in to other business areas.

Financial Risk

Who is providing the equipment and resources to make the work happen?

If all equipment, training and insurance is provided by the organisation, then HMRC interpret this as a lack of investment from the contractor and a subsequent lack of financial risk.

A genuine contractor must act like a small business owner and be accepting of the need to stump up the cash for the resources needed and to swallow any unexpected costs that may arise.


Do they have a staff car parking space? A pass for the building? A company email address? Access to staff discounts?

In other words, if you just met them in the corridor would you assume they’re an employee?

If the answer is yes, they may be inside IR35.

So, what now?

Once the new legislation comes to affect, you will need to decide internally if a new contract vacancy sits inside/outside of IR35. Nobody wants to be made an example of so it’s vital you have your internal process down…

We supply contractors but we’re far from experts on IR35! Thankfully, we know some people who are – so, for further information contact Brookson One who are offering advice and ongoing support:

Agency partners and potential candidates will need to be informed at the start of the recruitment process as its status will ultimately affect the “take-home” pay of the contractor.

If other businesses banish all contractors then get your LinkedIn Recruiter account at the ready! The changing face of employment dictates that there is lots of talent out there ready to support you outside of IR35.