IR35 Background - Page 3

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(2) Mutuality of obligations:

Employers and employees have what is known as "mutuality of obligations". This means that each has obligations to the other. Under the terms of the employment contract the employer must offer ongoing work and the employee must accept this offer and undertake to carry out the work.

In summary, if I am an employee, I know that when I finish for the weekend I am obligated to return at the beginning of the following week and that my employer is obligated to provide me with work.

Nearly all contractors are genuinely self employed and do not have this. Contractors are generally used for the duration of a project or to provide cover during busy periods and they know that their client can dispense with their services at a moment's notice. They do not have mutuality of obligations and are therefore not employees.

(3) Right of substitution:

Employees are required by their employers to provide personal service i.e. they are required by their employers to attend and undertake the work themselves. As a contractor, if you are entitled under the terms of your contract to use when necessary a substitute to carry out the work you would usually do, you are not obliged to provide a personal service and you have the "right of substitution". This means you are not an employee.

Summary:

Now that you have read our "IR35 Background" section you will have begun to understand where IR35 came from, what it was intended to do, and how contractors are affected by it. Try reading some of the other sections on our website to help you prepare and plan for IR35.

IMPORTANT UPDATE: Managed Service Companies rules

Don't forget to visit our section on the Managed Service Companies (MSC) rules. These important new rules are effective from 06.04.2007 !! They will affect anyone using Umbrella or Composite Companies. Some Limited Companies may also be affected if they are not run in the right way.

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Full index of pages:

Home Page IR35 Background - page 1 IR35 Background - page 2 IR35 Background - page 3

IR35 Rules - page 1 IR35 Rules - page 2 Beat IR35 - page 1 Beat IR35 - page 2

Beat IR35 - page 3 Beat IR35 - page 4 Ltd Company - page 1 Ltd Company - page 2

Ltd Company - page 3 Ltd Company - page 4 Umbrella Companies - page 1

Umbrella Companies - page 2 Composite Companies - page 1 Composite Companies - page 2

Composite Co - page 3 Composite Co - page 4 MSC - page 1 MSC - page 2 IR35 Insurance

IR35 Investigations - page 1 IR35 Investigations - page 2 Contracts - page 1

Contracts - page 2 Contracts - page 3 Resources 1 Resources 2 Resources 2 Sitemap