Contractors' Questions: What's our IR35 risk as a husband-and-wife 'Ltd'?

Contractor’s Question: I run a limited company with my husband --- he’s our lead contractor (we sub-contract others as required) who does the technical work and services.

I’m a company co-director but don’t work at the client sites. My role is company admin, finance and tax plus business development. Though the latter I’ve not needed to much of -- hubby’s just got a 6-month extension, taking his time with the client to three years.

He’s had several different roles with them but, pointing away from IR35, he’s never been supervised executing them, bar an initial brief. Is he a slight IR35 risk whereas I’m not at all at risk because I don’t engage with the company’s clients? The ESS says IR35 doesn’t apply but, for my circumstances, it doesn’t ask the right questions. Please help!

Expert’s Answer: As your 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 to you.

It appears that your husband is not the only provider of ‘technical services’ to the company’s end-clients, as you say 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 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”.

You mention the fact your husband is not supervised. This 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 you would like a more detailed opinion you 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’. 

The expert was former HMRC Inspector Jacqui Mann, a senior tax consultant at IR35 contract reviewers Abbey Tax.

Editor’s Note:  Related –

Contractors’ Questions: Why can’t I contract through my partner’s ‘Ltd’?

Supervision, Direction, Control: a contractor’s need-to-know

Contractors’ Questions: Will appointing a second director beat the NI EA ban?