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Inland Revenue illustration of IR35



These illustrations are not designed to represent the facts of existing relationships and are not intended to serve as guidance.

1. A draughtsman has for some years been employed by an engineering firm. To reduce his tax/NlCs liability and to reduce his employer's costs, the draughtsman's contract of employment is terminated on 28 February and he is re-engaged on 1 March to do the same work on similar terms via a personal service company. The draughtsman is subject to ongoing control as to what tasks he undertakes and how they are carried out. This arrangement should be caught by the new rules.

2. A doctor comes to work in the UK for two years. She is engaged by a private hospital through a UK service company. The consultant in charge directs the doctor as to what work she should do, has ultimate clinical responsibility for the patients and can supervise the doctor in the performance of her duties. This arrangement should be caught by the new rules.

3. A rugby club engages a player through his own service company. If the engagement had been direct the player would have been an employee. The club can control what the player does e.g. they can say in which matches he plays and tell him what training sessions to attend. This arrangement should be caught by the new rules.

4. A large road construction company hires 50 general labourers through a composite service company. Each labourer pays an administration fee of 50 a year to an accountant who administers the composite company. The construction company contracts with the composite company for the provision of the 50 general labourers for a two year period. The site manager employed by the construction company tells the general labourers exactly what tasks have to be undertaken on a day to day basis and how. This arrangement should be caught by the new rules.

5. A local council engages a firm of architects to design a new Civic Centre. Within the terms of the contract the architects must provide three different designs within an overall budget. There is a minimum requirement for office space, amenities, public areas etc. The designs must be completed within a fixed time-scale. The contract details the work to be carried out, timing, specification etc. These issues are agreed at the outset and the council do not subsequently have the right to tell the firm what tasks are to be undertaken e.g. they cannot tell them to design something different without amending the contract. Beyond the contract specification, the Council has no control over how the firm carry out the work. The new rules should not apply here.

6. A jeweller's shop engages a window cleaner to clean the shop windows twice a week before opening time on a Wednesday and a Saturday morning. The window cleaner operates through his own company. Here the initial agreement would specify exactly what was required. Although payment would not be made for unsatisfactory work, there would be no question of the shop owner telling the window cleaner how to clean the windows or telling him, for example, to go and clean the windows at his home address instead. The new rules should not apply here.

7. A large insurance company has set up a call centre to deal with its car insurance business. It engages an health consultant to give talks to all the call centre operators about back care and ergonomics. The consultant, who operates through her own company, is engaged to give 10 three hour workshops. The insurance company is relying on the consultant's expertise and cannot tell the consultant how to do the work. The contract specifies exactly what is to be done (i.e. 10 workshops) and the insurance company cannot tell the consultant to do something else instead (e.g. to provide treatment for those with existing back problems). The new rules should not apply here.

8. A school hires a coach with driver from a local coach firm to take a class on a two week field trip. The provision of the driver is incidental to the hire of the coach. The new rules should not apply here.

9. An IT engineer employed by a medium sized manufacturing company decides to 'go it alone' - leaving employment to set up his own IT consultancy. A few weeks later the former employer engages the consultant to undertake a millennium bug health check on all the company's computer systems. The consultant negotiates a fixed fee for providing a specified service to a pre-determined deadline. The company has no ongoing right of direction or control over what is done or how it is done. The new rules should not apply here.

10. A travel company has had a new computer system installed. The company hires an IT consultant to supply additional technical support and training for staff in the use of the new system. The consultant is taken on for a period of three months to undertake tasks as directed on a day by day basis by the IT manager. The new rules should apply here.

11. The 'head chef' at a small hotel is engaged through her own personal service company. The hotel cannot tell the chef 'how' to cook the food but it is able to veto menus suggested by the chef and can, for example, tell her to lay on a special buffet on a particular day, arrange a special themed menu for a particular night or produce special children's meals for a particular group of guests. The arrangement should be caught by the new rules.

12. A vet in partnership spends every Monday working at the local zoo attending various animals as required by their keepers and undertaking other duties (e.g. performing post- mortems, preparing animals for transit, supervising inseminations and providing training on various animal health matters) as directed by the head-keeper. The zoo pays the partnership an annual fee for the vets attendance each Monday. This engagement should be caught by the new rules. However, members of the partnership are sometimes requested to attend animals at other times - for example, when one injures itself in the middle of the night. Such visits are outside the terms of the annual contract and a fee is charged appropriate to the work done. On these occasions the zoo has no right of direction or control over what is done or how it is done. The zoo may reject advice given or refuse treatment recommended but this would not amount to a right of direction or control. In these cases the new rules should not apply.