Why contractors aren’t cut out for IT roles

For all the uncertainty created by facing a Budget when a ‘discussion document’ on IR35 is unanswered by the government, and overdue for that answer, there is one IR35 issue that contractors can rely on, writes Martyn Valentine, director of status advisory the Law Place.

It can even be relied on in the event that the government consults at Budget 2016 on one of the leading options that the discussion document put forward – aligning the test if IR35 applies with ‘Supervision, Direction, or Control.’

The issue I allude to is the sheer unhelpfulness of ‘job titles’ for contractors, and the ongoing misconception by agencies that it is acceptable to describe the services to be provided as a job e.g. a ‘business analyst’ or ‘project manager.’

This awarding of titles appears to be normal practice in the recruitment industry and it is abundantly clear that recruiters have difficulty in distinguishing between PAYE temps and genuinely self-employed contractors, even though potential changes to the Intermediaries legislation may compel them to by making a determination on whether you, dear contractor, are ‘SDC.’

The reality is that a contractor cannot operate outside IR35 unless it is clear that the capacity of the contractor's client is that of a customer of the contractor's business carried on by its representative. In other words, the contractor must be providing a commercial service to its client which is not part of the client's 'business as usual' function. Filling a role which is normally undertaken by a client's employee does not constitute self-employment irrespective of other factors.

Reference to a job implies that there is an ongoing obligation for the client to provide work and a corresponding obligation for the contractor to accept and undertake work during the term of the engagement. This is confirmed in every judgement concerning IR35 and to claim otherwise is entirely wrong. Indeed, HM Revenue & Customs are much more likely to escalate an otherwise routine employer compliance review to a contentious inquiry where the services have not been adequately defined. HMRC will examine all relevant documents including advertisements. An advertisement for a 'business analyst' for a fixed term is prejudicial for employment status.

This is a persistent mistake made by recruitment consultants and we are recommending that additional training is provided to them to prevent contractors being needlessly investigated by HMRC under IR35. The Agency Worker Regulations 2010 apply to both to recruiters and clients and not correctly expressing the services to be provided will provide deadly ammunition to a contractor seeking to enforce rights under these regulations. Clearly, it is in the interests of all parties to carefully assess the nature of the engagement before a draft contract is offered.

How can contractors avoid this mistake? Getting their contract reviewed for IR35 is the obvious solution; it provides a valuable opportunity to prevent drafting mistakes that could expose a contractor to risk in the future (six years from the end of the engagement). But some steadfastness is also worth applying. As other IR35 experts have said; resist having to sign off emails with an employee-style job title and change it so it reflects your external, independent status. Similarly, push back on any staff directory listings too – internal and otherwise. In short, and to paraphrase another ContractorUK contributor, ‘it is important to balance the needs of your audience - and client - with status-related issues.’

If this all too much to bear, and if your client’s true requirement is for a flexible resource on a fixed-term basis, i.e. where you the contractor may be moved from project to project or the work is otherwise part of the client's day to day activities, then operating inside IR35 may be appropriate. For the vast majority of PSC contractors though, we suspect it won’t.