Contractors' Questions: Is contracting for my ex-employer inside IR35?

Contractor’s Question: I was working as an IT consultant and decided to get into contracting. I have set up my own IT contractor limited company and have a couple of offers in hand. Upon resigning from my permanent role, my employer asked me to contract for 6 months as a contractor, since they needed me on a couple of projects.

If I decide to contract with them for 6 months and then go onto different services, would my contract probably fall within IR35? If the contract is extended in a manner that it covers all IR35 tests - MOO, Substitution, etc. would I still be caught by IR35 for the sole reason that the contract/assignment is with my former employer?

Expert’s Answer: You have got two issues here. The first is the contractual terms (including the working practices) that cover the first 6 months of the contract with your old employer. It is, remember, perfectly possible to enter into a totally different relationship with the engager, so that one is considered employment and one self-employment.

However if the work you will be doing is little different to that you did as an employee the situation is the classic “Friday to Monday” scenario, which IR35 was intended to prevent. The way your question is phrased suggests you think that this is the case and that you are within IR35 for this first period.

The second issue is effectively a break between engagements and you ask if this changes things. As above, it is again all about the contractual terms including the working practices.

If the relationship between you and your old employer remains the same each time you undertake any work then IR35 will still apply. I would stress that it is the reality of the relationship that is paramount and just putting the important status factors into a written contract does not change the reality.

You have to ask yourself, in the event of an IR35 investigation into your status, what would your former employer say to the authorities about the differences in the terms and the differences between how you are treated as a contractor compared with when you were an employee?

Your situation may be easier to clarify by discussing things with your former employer and if your contract is direct with them (rather than through an agency) this is the correct place to start to thrash out and agree the terms.

The expert was Kate Cottrell, a former Inspector of Taxes for the Inland Revenue and managing director of Bauer & Cottrell.