IR35 tax and the DOS framework
One of the questions often asked by suppliers is: how does the Digital Outcomes and Specialists framework relate to IR35? In time for DOS3 we decided to provide some reassurance.
**Just before we get into this we are not trained accountants and this blog should not be treated as tax advice. Please contact a qualified accountant for specific advice around the IR35 tax legislation. This blog is purely our understanding of how the legislation works in relation to the DOS framework**
What is IR35?
Let’s first look at what the Intermediaries Legislation (IR35) actually is. IR35 is a tax legislation implemented back in 2000 that is aimed at identifying individuals who are avoiding paying the tax that they should be. It applies to supplying or delivering services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. It basically means HMRC can evaluate you as what’s called ‘disguised employee’ rather than ‘self-employed’ from a taxation perspective and tax you higher rates. These ‘disguised employees’ are not usual in the public sector, where teams of contractors can be found effectively working permanently in-house as resources on tap.
How does IR35 connect to the DOS framework agreement?
Since the DOS framework is intended for specialists, there was fear among the supplier community that IR35 will influence delivery conducted via the framework. In other words that applying for an opportunity could lead to higher taxes than originally planned. This is particularly relevant for opportunities published under Lot 2 Digital Specialists. In that regard, the Digital Outcomes and Specialists buyers guide states:
Buyers can only use the Digital Outcomes and Specialists framework for workers who meet the rules for working off-payroll (known as ‘outside IR35’). Buyers are responsible for checking whether workers meet the rules.
The Digital Outcomes and Specialists 2 (DOS2) framework projects are also carefully scoped around a specific set of deliverables (outcomes) which satisfy the rules for the service being out of IR35 scope. This works in theory but often in practice suppliers are still not clear whether the advertised opportunity actually does sit outside of the rules. Our advice here is simple: make sure you ask! DOS opportunities often have ways of contacting the buyer listed on them or they outline supplier engagement events on the tender. That’s your opportunity to ask this and other burning questions!
What can suppliers do to be re-assured for Digital Outcomes and Specialists 3?
The other assurance you and your buyer have is the very helpful HMRC tool to check the Tax status of people involved. If the tool confirms you are outside of IR35 and your buyer agrees your case is practically bulletproof. A little pro tip here: when filling in the tool the key areas that you should focus on are those of Substitution. This is what IR35 is partly all about. As a contractor you need to show that you are prepared to:
- cover the costs if for what ever reason you need to rectify your deliverable
- cover the costs of hiring a substitute in case in case you cannot longer fulfil the duties outlines in the contract eg. sickness
If you can answer Yes to both of these questions you are most likely outside of IR35.
It is understandable that DOS suppliers are a bit nervous when it comes to IR35. If you are a company that hires several contractors, you want to be certain about their IR35 status and you want to know if the opportunity you are applying for is outside of the scope. We are not lawyers by any means but in our experience, when it comes to the DOS framework, suppliers can relax a bit. DOS makes it quite straightforward to hire outside of IR35 and also let’s not forget IR35 investigations are costly.
If you are still nervous about it perhaps you should consider IR35 Insurance. The online space is full of insurance companies offering this kind of service and it’s always best to play it safe.