The employment status tests which are used to determine whether or not IR35 applies are not going to change between now and April 2021, and so the basic application of the rules is at least understood. Using current legislation as our guide, IR35 should be applied where:
- There is an agreement between the end user and the PSC for the worker to provide personal services; and
- Had that agreement been between the worker and the end user, the worker would have been treated as an employee of the client for income tax purposes (the NIC rules are broadly similar).
When applying an IR35 status determination test, it is necessary to consider the relevant features of the arrangements between the worker and the end user and determine whether, in substance, the relationship is that of employer and employee, but for the existence of the PSC in between.
These factors include:
- Whether the worker has a right of substitution or is obliged to perform the services themselves.
- The level of supervision, direction or control the end user is able to exercise over the worker when carrying out their duties; and
- The level of integration into the end user’s business (i.e. whether the worker is in effect treated as though they were an employee).
The case law from which these tests derive is complex, and the Courts have consistently held that these factors should be considered in the round, rather than being applied as a ‘box ticking’ exercise. The qualitative and subjective nature of these tests presents difficulties for both taxpayers and HMRC. Indeed, in the Christa Ackroyd Media Ltd case the Tribunal Judge stated that reaching a conclusion on these tests ‘is a value judgment’… it is in the nature of a value judgement that different people may come to different conclusions.