In April 2021, HMRC is making changes to the way IR35 is determined. Being outside IR35 means less tax, but how do you go about finding outside IR35 contracts?
The changes mean that companies that match two of three criteria (£10.2m+ turnover, £5.1m+ on their balance sheet or 50+ employees) will be responsible for determining whether or not a contractor is deemed outside IR35, rather than the current model which expects the contractor themselves to determine their IR35 status.
There is still much debate about what it all means, and a lot will remain uncertain until the changes come into effect. What we do know is that these changes will cause ripple effects throughout the industry, changing the way contractors look for work.
I want to explore the different ways to find contracts that are outside IR35. But first, it's worth covering what an outside IR35 contract should look like.
What should an outside IR35 contract look like
This does not constitute legal advice - I'm a contractor, not a contract specialist. Ensure you get your contracts checked by an IR35 specialist, such as Qdos.
Before I dive into the best ways to find contracts outside IR35, here's a quick summary of what being outside IR35 looks like. If you're totally new to IR35, you might benefit from reading this guide. The short version is, you want to be determined outside IR35 in order to avoid paying PAYE tax.
To be considered outside IR35, you need to make sure that your contract determines:
- Control: Control where you work, determine your own hours
- Substitution: Are able to substitute to another specialist at your discretion
- Mutuality of obligation: Are able to reject pieces of work, and your client is under no obligation to provide any
This means both in the legalese of your contract and practiced on a day-to-day basis. In reality, this means you should:
- Work remotely at a place of your choosing
- Determine when you work (easy enough when you're remote)
- Substitute parts of your work to other contractors where possible
- Work part-time, taking on work from multiple clients at once
- Work on a specific piece of work like "building a prototype for X" instead of generic work like "helping to support the team" or "boosting productivity of the engineering team"
Unfortunately, finding a contract that ticks all the outside IR35 boxes can be extremely challenging. It's something that I've personally been struggling with for years, but the incoming changes to IR35 regulation create a huge opportunity to find contracts that are truly outside IR35 both in contract and in practice. You just need to know where to look.
Ways to find an outside IR35 contract
1. Focus on smaller clients
As previously mentioned, only companies that match two of the three criteria become responsible for determining IR35 status: exceed £10.2m turnover, have over £5.1m on their balance sheet or have over 50 employees. This means that an obvious workaround is to focus on smaller companies where you are still able to determine your own status.
The challenge here is both in ensuring your contract is truly IR35 proof, but also establishing as good a rate as you could with a larger client. Smaller clients may not understand much about IR35 and may show resistance to the terms you need to bulletproof the contract.
When negotiating, make it about deliverables and regulatory obligations. They might be new to contractors and IR35, so they may well consider you the expert and look to you for advice on the best way to set up the contract.
2. Request an IR35 determination
If you like to work with larger companies, or you're already working with one, chances are they’re outsourcing the majority of their contract hiring to a verified supplier. Many organisations are opting to defer worrying about IR35 to their suppliers, but HMRC has made it clear that the suppliers will also be responsible for IR35 determination. In order to minimise their risk, many of these companies are resorting to simply flagging all contractors as inside IR35 and placing them under an umbrella company.
What these suppliers won’t tell you, however, is that most of them have an exclusive IR35 determination programme that they use in special circumstances - after all, outside IR35 contracts are often necessary and desirable.
If you’re already working with a large firm via an enterprise, or negotiating a new contract, I recommend first negotiating the working relationship directly with the client, making sure it falls outside IR35 as described above. Speak to the person bringing you in, and get them on your side (again, they may well defer to you as the "expert"), This will help you have buy-in from the client, and the supplier will then aim to please the client.
Once the client is on board, speak to the supplier and request an IR35 determination since you are sure your type of work will be deemed outside IR35. This might take a few weeks, but will be worth the wait. Depending on the client, you may be able to work with them in parallel with their IR35 determination since the IR35 changes only affect payments done for work after April 2020.
I'm currently going through this process for a large UK-based client myself, whilst doing a short-term contract with them in the meantime. I'm confident in the result of the determination since I've been speaking to other contractors who have gone through the same process with the same client.
3. Take on overseas clients
Overseas clients can be much easier to work with on an outside IR35 basis since you're likely to be remote. However, overseas clients aren't implicitly outside IR35.
As explained by Qdos, the IR35 experts, this is covered during HMRC's consultation document from March 2019, which states
Where the agency or third party that would be the fee-payer is offshore, the liability moves to the next person above them in the contractual chain which is in the UK. If only the client is in the UK then they will be the liable party. Where a party in the contractual chain, including the client is outside the UK but the off-payroll worker performs services in the UK, fee-payers must still deduct tax and NICs.
i.e. the IR35 liability will just come straight back to either the agency or your limited company, whoever is the first party in the UK. Therefore, it's still important to negotiate a contract that matches the terms outlined above - it's just much easier with an overseas client.
If they're having a hard time understanding what IR35, link them to this article.
It’s also important not to avoid getting mixed up in the countries own tax regulations, so make sure you speak to your accountant and lawyer before venturing into new territories. Additionaly, double check that your insurance covers overseas clients.
I've personally used this approach when working with Hilton Hotels, who are based in Dallas. Expanding my insurance to cover US clients increased my premium somewhat, but not to unsustainable levels - around the £1,300 per annum mark. I hope to pick up more IR35-proof work with them in the future.
4. Use an IR35 friendly job board / marketplace
99% of the job boards out there aren't focussed on contractors (👋 Hello, can you hear us?!) and so don't really help with finding contracts outside IR35 besides just searching for "outside IR35".
Fortunately, there is a new breed of job boards that explicitly focus on the needs of contractors.
wellpaid.io (that's us!)
Our transparent job board for tech contractors enables contractors to easily browse and filter contracts by the criteria that matters to them—such as outside IR35 status or remote roles.
We've now also launched a new marketplace, which makes it even easier for contractors to find gigs that match their requirements. When signing up to the network, members are able to create a free profile, which contains all of their key business info—including skill set, rates, availability, and IR35 preference.
These profiles make up a contractor database, which hirers can search to find contractors who meet their needs. This means hirers can actually reach out directly to you when you’re available—helping you find outside IR35 gigs without having to lift a finger.
This job board only shows contracts outside IR35.
A partner site to wellpaid.io, there's a lot of overlap in the technical jobs available - however, IR35List is expanding beyond technical roles to include positions such as contract Project Managers, so this site is definitely worth subscribing to. You can also follow them on Twitter if that's more your thing.
It's run by another contractor, Charlie Ward who also runs IndieBeers.
This is not an exhaustive list, but just methods that I've personally found useful when finding contracts outside IR35. If you found an outside IR35 contact by a different means, please reach out to me via Twitter - I'd love to check it out and add it to the list.