A business on own account?

Are you a business on own account?

It’s rarely conclusive, but it does affect your IR35 status, for the simple reason that if you look like a genuine business, you’re more likely to be one.

Whilst this seems a very simplistic approach, it does make sense when you consider a contractor who has invested significant sums of income by updating their skill set by undertaking further qualifications or training which is fully funded by their business. Investing in equipment and advertising the services your business provides is also a good example of proactively seeking to develop the business with a view to obtaining more customers and ultimately expanding.

Providing your own equipment can be tricky and whether you will be able to do so will often depend on the industry in which you work. Where you provide your own equipment, which is crucial to the services you are providing, the provision of such equipment will be a strong pointer towards genuine self-employment.

In the case of Ready Mixed Concrete (South East) v Minister of Pensions and National Insurance (1968), it was ultimately determined that the contract was one of carriage rather than of employment, and the fact that drivers provided their own lorries was a significant factor in reaching this decision.

HMRC’s own guidance (ESM0520) states that;

“Provision of equipment is of most significance when it is fundamental to the service provided and sufficiently important to affect the substance of the contract.”

Providing own equipment is just one example of how you may appear to be operating a genuine business. In the case of Market Investigations v Minister of Social Security (1969), an interviewer who was engaged on a series of contracts was determined to be employed and one of the factors which featured heavily within this case was whether the interviewer was in business on their own account. In an extract from the judgement, it is stated that;

“The fundamental test to be applied is this: Is the person who has engaged himself to perform these services performing them as a person in business on his own account?” If the answer to that question is ‘yes’ then the contract is a contract for services. If the answer is ‘no’ then the contract is a contract of service.”

There is no exhaustive list of what should be considered in determining whether a person is in business on their own account – this is highlighted within HMRC’s own Employment Status Manuals (ESM0515), as follows which, interestingly enough, completely contradicts HMRC’s own Check of Employment Status for Tax (CEST) tool, which is for all intents and purposes a checklist;

“In order to decide whether a person carries on business on his own account, it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a checklist …The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.”

In a more recent IR35 enquiry heard at Tribunal in 2011, ECR Consulting Ltd was found to be genuinely self-employed, with the ‘Business on own Account’ test featuring quite heavily. ECR Consulting Ltd provided highly skilled IT services, it had its own business cards and company stationery. The business had its own website and advertised its services. The company had retained reserves and had invested in development, and for some clients it had undertaken fixed price work.

This evidence was, along with other supporting factors, what led the Tribunal to conclude that ECR Consulting Ltd was a genuine business and “not a target of the IR35 legislation”.

Whilst it might not be advisable to put all of your eggs into the ‘business on own account’ basket, investing and developing your business will certainly stand you in good stead and will make a positive difference to your IR35 status.