Anyone who engages self-employed contractors will be heaving a sigh of relief or more likely cracking open the champagne after the recent mini budget.

Just as businesses got used to the idea that it was them who had to decide if contractors were inside or outside the IR35 rules, last week’s mini budget announced that it was to go back to old rules, i.e. the contractor once again determines whether they are self-employed or not.

For anyone who is unsure what IR35 is, they are the rules which mean that self-employed contractors pay roughly the same tax and NI contributions as someone working for the company.

In April 2021 (after a year’s delay due to COVID), the rules were changed so that the company themselves (subject to certain criteria) had to decide whether the contractor was self-employed or not, even if the contractor provided those services through their own company. The reason for this is that HRMC were concerned that there were some contractors who set up companies and purported to be self-employed purely to gain tax advantages.

The repealing of the 2021 rules will come into effect from 6 April 2023 so until then, it is still the company’s responsibility to decide if a contractor is self-employed or not. To determine this, HMRC uses a ‘multi-factorial test. This considers (amongst other things):

· Supervision and control. How much control does the company have over the contractor? Are they told when to work, how to work what to do or is the contractor ‘left to their own devices’ to just carry on?

· Substitution – can the contractor send someone else to do the ‘job’? This is one that we struggle to understand. If a contractor has been engaged because they have a particular skillset, how can you realistically send someone else to do it?

· Mutuality of obligation – is the contractor obliged to accept any work offered to them and is the company obliged to offer the contractor work?

One issue that HMRC focuses on is ‘equipment’. So, if you use the company’s equipment be that IT software, branded clothing, tools, vehicles etc., this makes the contractor viewed more as an employee rather than a self-employed contractor. However, if the company has to use a particular piece of software or the contractor has to wear PPE which also happens to be branded, that doesn’t (in our view) equate to them being an employee, just as someone who is an employee using their own laptop to work on, is not self-employed.

If you have any questions about IR35, please don’t hesitate to get in touch.