Am I Allowed to Work as a Contractor Inside IR35 for My Clients in the UK on this Visa?
Perhaps the most important piece of advice we give to our clients who have successfully secured a UK visa is to always check before doing anything which may breach their visa conditions. It is all too easy to assume that even a minor change will be permitted by the Home Office, but this may not be the case. And the penalty for a breach, even a minor one, maybe cancellation of the Visa. In this article, we will take a look at whether Innovator Visa holders are able to work as a contractor and the implications of the new IR35 tax reforms.
What Are The IR35 Tax Reforms?
The UK government and HMRC introduced the new IR35 off-payroll tax reforms in April 2021 as a way of preventing contractors and their intermediaries (e.g. limited companies) from benefitting from the tax advantages of self-employment when they would ordinarily be classed as an employee of the business they are working for. The concern is that contractors using limited companies as an intermediary have effectively been avoiding paying tax. Not all contractors will meet the criteria for off-payroll taxation as this depends on a range of factors, including the level of control and direction of the client, whether the client benefits from the exclusive services of an individual, and whether there is an ongoing obligation for the client to provide work to the contractor. At the crux of the issue is whether the person technically has a ‘contract of services’ or a ‘contract for services’; An employee-employer contract is a ‘contract of service’ (also known as an employment contract), whereas a contractor-client contract is a ‘contract for services’.
What Are The Immigration Rules For Innovator Rules When It Comes To Contracting?
Under the immigration rules, Innovator Visa holders are only permitted to work within the business or businesses they have established, joined, or taken over. They cannot work directly for another business. However, it is permissible for an Innovator visa holder’s business to provide services to another business, but they must not be employed by the client themselves.
The Innovator visa guidance states, “Where a migrant enters into contracts with another business in this capacity, this will normally be regarded as contracts for service. This is also not allowed in this route if it means that their work involves that other business, in effect, hiring them for their labour or to fill a position or vacancy. This includes where the other business hires the individual using a recruitment or employment agency… Contracts entered into by the migrant with another business in this capacity will normally be regarded as contracts of service. This applies even if the applicant claims the work is undertaken on a self-employed basis”.
This explanation makes it clear, therefore, that Innovator visa holders cannot work for another business under a ‘contract for services’ where they are, in effect, employed. This is because the Home Office is highly alert to potential instances of ‘disguised employment’, which are a breach of the UK immigration rules.
How are Innovator visa holders impacted by the IR35 rules?
The challenge for Innovator Visa holders with contracts to supply services through their UK business is that HMRC now requires greater scrutiny of whether the actual relationship between contractor and client is one of employment or not. As such, even if you have a contract for services, based on the new IR35 criteria, you may be technically under a contract of services (i.e. employed). This would invoke the new IR35 status, but it may also potentially lead to a breach of the Innovator visa rules. The judgment as to whether contractors fall inside or outside the off-payroll rules is made by the client business (if they are classed as a medium or large business). The new IR35 guidance states, “From 6 April 2021, all public sector clients and medium or large-sized private sector clients will be responsible for deciding your worker’s employment status. This includes some charities and third sector organisations”. Hence, if you are an Innovator visa holder and you have a contract for service with clients through your UK business, it is advisable to check whether HMRC would consider you to be employed. There are several ways to do this, including engaging the help of an accountant or financial advisor or use online tools. The HMRC provides an online ‘check employment status for tax’ checker, which will ask you a series of questions to see if you fall inside or outside of IR35. It will ask you questions such as:
- Have you ever sent a substitute to do the work?
- Does the client has a right to reject a substitute?
- Does your client have the right to move you from the task you originally agreed to do?
- Does your client have the right to decide how the work is done?
- Does your client have the right to decide your working hours?
- Does your client have the right to decide where you do the work?
- Will you have to buy equipment before your client pays you?
- If the client was not happy with your work, would you have to put it right?
- Will your client provide you with paid-for corporate benefits?
Based on the answers provided, you will be advised if you fall within the new rules, outside the rules, or it is not possible to make a determination. If the client you work for is a medium or large business, they will make the determination, but you will have the chance to appeal this.
In most cases, it will be very clear that a UK business run by an Innovator Visa holder will have a contract for services with another business, and the relationship is not one of disguised employment. If you are unsure if you will be classed as an employer or contractor under the new IR35 rules, and, therefore, whether this may lead to a potential breach of your Innovator visa, speak to an immigration Solicitor who will be able to quickly liaise with a specialist tax advisor who can confirm your position.