IRC and IR35 Compliance
Determining Employee Status
When determining if a contract and business relationship is that of a self-employed nature or that of “a disguised employee” there is criteria to consider and failure to address these points could leave both parties open to a tax investigation.
Compliance to IRC and IR35
Compliance to Industry Established Standards
As a limited company StudioCinna conducts all its business services within the formalities, strategies, rules and laws of business. In compliance with HMRC, Internal Revenue Codes (IRC), and Industry Established Standards — StudioCinna's business practices and services, contracts, and terms and conditions adhere to the guidelines for IR35 Compliance and The Twenty Factors Control Test used to clarify the distinction between employees and independent contractors.
The Twenty Factors Control Test
Instructions: Is the worker required to obey the firm's instructions about when, where and how work is to be performed? If the firm has the right to require compliance with such instructions, the worker is likely to be an employee. The control factor is present if the employer has the right to require compliance with the instructions.
Training: Training a worker suggests that the worker is an employee. Training may consist only of having a more experienced employee fill in the newcomer on office procedures, or he or she might be required to attend meetings or read files and/or correspondence. Independent contractors use their own methods and receive no training from the purchasers of their services.
Integration: If a worker's services are part of a firm's operations, this suggests that the worker is subject to the firm's control. This is especially true if the success or continuation of the firm's business depends in a significant way upon those services.
Personal Services: If the firm requires that the services be performed in person, presumably the employer is interested in the methods used to accomplish the work as well as the end results, this suggests control over an employee. An employee often does not have the ability to assign their work to other employees, an independent contractor may assign the work to others.
Use of Assistants: If the firm hires, directs, and pays the worker's assistants, this indicates employee status. On the other hand, if the worker hires, directs and pays for his or her assistants, supplies materials, and works under a contract providing that he or she is responsible only to achieve certain results, that is consistent with independent contractor status. An independent contractor hires, supervises and pays assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.
Ongoing Relationship: If the relationship is ongoing, even if frequent work is done on irregular cycles, the worker is likely to be an employee.
Fixed Hours of Work: That suggests the worker is an employee controlled by the firm. An independent contractor sets his/her own schedule.
Full-Time Work: If the worker is with the firm full time, that suggests the firm controls the time of work and restricts the worker from taking other jobs. That shows employee status. An independent contractor is free to work when and for whom he or she chooses.
Work Location: If the firm requires that the worker be at the firm's premises, that suggests employment, especially if an employee normally has to perform similar services at an employer's premises. The worker that performs services off-premises implies being an independent contractor. An independent contractor may perform the work wherever they desire as long as the contract requirements are performed.
Workflow: If the worker must conform to the routines, schedules, and patterns established by the firm, that is consistent with being an employee. An independent contractor performs the work in whatever order or sequence they may desire.
Reports: A requirement that reports be submitted, whether oral or written, suggests employee status by indicating a degree of control by the employer.
Manner of Payment: Payment by the hour, week or month suggests an employee, while payment of an agreed-upon lump sum for a job suggests an independent contractor.
Expenses: Payment of expenses by the firm implies the right to control company expenses, and thus suggests employment status.
Tools and Equipment: If the firm provides tools and equipment, it suggests the worker is an employee.
Investment: If the worker has a significant investment in his or her own equipment, that implies being an independent contractor.
Profit or Loss: Having a profit or loss (due to overhead, project costs, and investment in equipment) is consistent with being an independent contractor.
Multiple Clients: Working for many clients suggests independent contractor status. However, the worker could be an employee of each of the businesses, if there is one service arrangement for all clients.
Marketing: If the worker markets his or her services to the public on a regular and consistent basis, that indicates independent contractor status.
Right to Discharge: If the firm can discharge the worker at any time, that suggests employment. An independent contractor cannot be dismissed without legal liability unless contract specifications are not met.
Right to Quit: An employee may quit at any time without liability, but an independent contractor may be liable for failure to perform, depending on the contractual terms.
Three Categories of Control Factors
There are three categories of factors to assess the degree of control and independence which are used within the twenty factors control test.
Behavioral Control: Includes the type of instructions the firm gives to the worker, such as when and where to do the work, and the training the business provides to the worker. The key consideration is whether the firm has retained the right to control the details of the worker’s performance or has relinquished that right.
Financial Control: Address the firm’s right to control the business aspects of the worker’s job.
Relationship Of Parties: The nature of the relationship may be evidenced by: a written contract; the benefits the firm provides to an employee; the permanency of the position; and the extent to which the services performed are a key aspect of the regular business of the firm.
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