In an ideal world, an independent contractor should be seen as just that; completely independent from the client’s organisation.
It should be clear to anyone within the client’s organisation that you are an independent contractor, separate from the client’s organisation and its employees, and therefore treated completely differently from the client’s permanent, salaried workforce.
Sometimes however the lines can become a little blurred, particularly where there is a requirement for a contractor to not only interact with the end client’s customers directly, but also to be held out as a representative of the end client. From a commercial perspective this is completely understandable and one can certainly appreciate why an end client would wish to demonstrate to its customers that it possesses such specialist skills in-house, but where does it leave us from an IR35 perspective?
The biggest issue this can create is concerning integration or becoming part and parcel of the client’s organisation. Potentially therefore, the implications could be quite problematic but as is always the case with IR35, it will depend on the specific circumstances, and it is indeed possible to undertake a contract for services, where there is a requirement to be customer-facing.
This was highlighted in the First-tier Tax Tribunal case of Slush Puppie Ltd (SPL) v HMRC (2012) where Mr Sandford was engaged by Slush Puppie Ltd (SPL) as a self-employed engineer.
All SPL service suppliers were provided with a uniform carrying the SPL logo. It was particularly important for engineers to wear their uniform when visiting customers such as schools where personal ID was important to the customer.
The Tribunal concluded that Mr Sandford was not an employee and stated that:
“The outward appearances of Mr Sandford’s business made it appear to SPL customers as though they were dealing with SPL itself. The wearing of a uniform, being issued with SPL business cards, and displaying an SPL telephone number and e-mail address on his own business stationery, combined to reassure customers that Mr Sandford was ‘an SPL man and that SPL vouched for him’. This was important to SPL so as to instil customer confidence but it was not decisive of Mr Sandford’s employment status.”
The above case helped to demonstrate that whilst a contractor may be required to act as a representative of their end client, it is still possible to maintain an independent and genuinely self-employed status. In finding Mr Sandford to be genuinely self-employed, the Tribunal stated that the agreement was of an ‘ad-hoc nature’, that Mr Sandford did not need or receive any supervision, there was no mutuality of obligation on either side beyond Mr Sandford working on the days agreed and that Mr Sandford was exposed to a financial risk.
Conversely, in the case of Future Online Ltd v Foulds (2004), Mr Roberts (Director of Future Online) who had provided his services via an agency (Elan) to the client company (EDS), appealed against HMRC’s ruling that he was a disguised employee of EDS.
The appeal ultimately made it to the High Court (following a Special Commissioners Hearing) where Mr Roberts’ arguments were rejected by the Judge who found Mr Roberts to be employed for tax purposes, and in full agreement with the Special Commissioner who found that there was a right of control over Mr Roberts, and that he was “an integral part of the EDS organisation rather than just being part of a team working on a project.”
Mr Sandford worked on an adhoc basis, had the right to refuse work, and was not subject to any supervision, direction or control. Mr Roberts however was subject to a right of control and was found to be completely immersed in EDS’s business, becoming an integral part of their organisation.
Although the above cases are very different, both help to show that it will depend on the specific circumstances of a case and that taking on a contract which requires direct interaction with the end client’s customers is unlikely to be determinative by itself.
The key issues in determining IR35 status, namely Right of Substitution/Personal Service, Control and Mutuality of Obligation, have remained constant since they were established in the Ready Mixed Concrete case in 1968, and to this day remain the favoured tests used by the courts to determine IR35 status.
If the above tests are weighted in your favour, such features are likely to outweigh the fact that on occasion there might be a requirement to be presented as part of the end client’s business when interacting directly with their customers.
Where a contractor cannot rely on one or more of the above status tests, having to represent the end client could become more significant and could help HMRC to argue that mutual obligations exist and that you are part and parcel of the organisation. A contractor should always be standing on the periphery rather than being at the centre of the end client’s business activities.
This does not preclude building up a rapport with the end client or its customers, as this will simply make for a positive working relationship and perhaps the possibility of further work later down the line. It is important however, particularly with the end client and their employees, that they are aware a contractor is not the same as an employee.