There are a number of elements that will determine whether IR35 applies. Here we take a closer look at 3 areas that are key to identifying whether a PSC contractor can engage as inside or outside.
The three tests for employment status taken from previous case law are: the Right of Substitution, Control and Mutuality of Obligations.
What is the Right of Substitution?
With regards to IR35, the right of substitution means the right for a Limited company to replace its representative subject to reasonable criteria. This is also important for the end client, to show that their requirement is for a professional contractor to provide a service and not just a specific individual.
What is ‘Control’?
Control is a very important factor for IR35 determinations. When, where and how you work and who controls this are the important factors.
If your client(s) decides where you work, when you work or how you carry out your work, it indicates that you’re operating in the same way as an employee. Your contract therefore, is within IR35.
If you have the ability to decide how a contract is completed and can complete the work according to your own schedule, it is likely this would be outside IR35.
What is Mutuality of Obligation (M.O.O.)?
When a company is obliged to provide paid work and a contractor is obliged to then accept and complete the work, this is considered mutuality of obligation – making the relationship more like an employee and employer.
Limited company contractors should never expect or receive mutuality of obligation. Self-employed workers are instead engaged on a contract for their services.
There is some ambiguity around this in terms of employment status tests, as some Mutuality of Obligation will exist in either a contract of service or a contract for services.