Such is the level of concern among contractors about IR35 compliance that many might be wondering whether to attend their client’s Christmas party this year.
Assuming you even receive an invitation to the staff Christmas party, would accepting it and turning up put you at risk of being judged as inside IR35? Or is it just an urban myth? In the eyes of HMRC, is it acceptable or not for a contractor working outside IR35 to enjoy a client’s festive hospitality?
Well, there are a few trains of thought among tax advisors when it comes to this debate, each of which deserves to be taken seriously considering HMRC’s apparent determination to catch contractors who it believes are abusing the rules.
First and foremost, contractors should bear in mind that the vast majority of IR35 cases are won and lost on Control, Mutuality of Obligation (MoO) and or Substitution. These principles are widely considered as the most important factors to take into account when making an IR35 decision or in the event of an enquiry, not whether you attend the office Christmas party.
Contractors working outside IR35 need to be able to demonstrate they are in control of the services they provide (Control), are not obliged to carry out any work (MoO) and are able to provide a substitute (Substitution). Should they be able to prove this to HMRC if queried, the general consensus is they can enjoy a client’s Christmas party without worrying too much.
But if your engagement isn’t clear-cut, there’s a chance HMRC will look into a number of other factors when investigating your IR35 status, one of which is known as ‘part and parcel.’ It goes without saying that you don’t want HMRC to view you as ‘part and parcel’ of a client’s company if you operate outside IR35.
As with many aspects of IR35, the definition of ‘part and parcel’ isn’t completely clear. But generally speaking, when establishing whether you are or not, HMRC will ask you or your engager a number of questions. They include; whether a contractor has access to all staff facilities, has their own space in the company car park, appears as one of the team on the client website and attends social events hosted by the company.
‘Part and parcel’ also features on CEST, HMRC’s IR35 testing tool. And while it’s not considered as important as questions around Personal Service and Control, the user will be asked if the contractor enjoys ‘other benefits’ if the engagement isn’t clearly inside or outside IR35. This could allude to social events, like the Christmas party for example.
Accepting an invitation to a client party this month isn’t considered a definitive sign that you are ‘part and parcel’ and belong inside IR35. Showing that Control exists, that MoO doesn’t and having the right to provide a substitute will more likely play a deciding role in setting, upholding or even overturning an IR35 status.
To be on the safe side you can always insist on buying your own ticket or even just contribute to the cost of it. Should HMRC decide to look into your engagement, having paid for your ticket shows you aren’t entitled to the same benefits as employees. This will help strengthen your case for operating outside IR35.
As most contractors know, IR35 is a complicated tax legislation, so if you’re still unsure about accepting an invitation to the Christmas party, it’s worth chatting to an expert, just to put your mind at rest. 2018 has been a challenging year for contractors, so you have every reason to want to let your hair down in the next few weeks.