IR35: Supervision, Direction and Control
Posted on 25th May 2016
In our recent article explaining the recent changes to contractors’ claims for tax relief on travel and subsistence, we briefly covered what is meant by “supervision, direction, and control” as a test to distinguish ‘false self-employment’. There hasn’t been a great deal of guidance provided by HMRC, but using the Employment Status Manual, we hope to provide a little clarity on what the new rules mean for UK contractors.
As outlined in our earlier article, as of April 2016, contractors within the UK are no longer able to claim tax relief of travel and subsistence if they are employed through an employment intermediary (i.e. not employed directly through the company you’re carrying out work for) and are subject to the Supervision, Direction, and Control (SDC) test.
Supervision, as part of the SDC test, refers to contractor’s work being overseen in some capacity. From a contractor’s perspective, this could mean someone checking to ensure you are fulfilling the expectations of the role, that work is carried out correctly, and to the required standard. You may also be subject to supervision if, while in the role, a person helps you to develop your skills and knowledge.
To be subject to Direction, someone else must be dictating how your work is carried out, via some kind of instruction, guidance, or advice.
And for the final element of the test, Control, how, when, and where you carry out your work must be dictated by another person.
Broadening the scope
In reading the definitions, you could be forgiven for assuming that meeting any of the criteria would be somewhat easy to avoid. However, HMRC have ensured that the SDC test is so broad, that few contractors will fall outside of the scope.
For starters, the person with supervision, direction, and control does not have to be the equivalent of a line-manager. Absolutely anyone can be given the authority to supervise, direct, and control your work. What’s more, a contractor doesn’t need to meet all three criteria, just one is sufficient for a contractor to fail the SDC test.
However, the biggest catch-all is that so long as this person has ‘the right of’ SDC, it doesn’t even have to be exercised. Essentially, as long as there is a person who can at any time during your period of work dictate the work you do, and how, when, and where it is carried out, you’re likely to fail the test.
Is there any way around it?
There are some exceptions of note when considering whether you will be subject to supervision, direction, or control.
Supervision: Ensuring that the work has been done correctly at the end of a contract does not amount to supervision, so if this is the only point at which your work has, or is likely to have been, overseen, this will not meet the criteria for supervision;
Direction: If there is no-one within the company with the capacity to direct your work, you could argue that there you cannot be subject to direction. An example of this would be a contractor with a level of expertise in an area of which the client has little or no knowledge of (e.g. a legal advisor);
Control: Contractors filling in for a permanent employee on leave are unlikely to meet the control criteria. You may also be able to claim back travel costs if travel between sites is a requirement of the job itself, even if you are subject to SDC. For example, engineers who use their own vehicle to move between sites, or a social worker who visits homes or different healthcare settings as part of their day-to-day job.
HMRC have stated that SDC will be assumed for all contractors working through an employment intermediary. However, in some cases, an agency may be able to provide a ‘Confirmation of Arrangements’ document, stating that the contractor will not be subject to supervision, direction, and control.
If you work through a Personal Service Company (PSC) and fall outside of IR35, the SDC test won’t apply to you.
Finally, bear in mind that the SDC test relies on whether there is supervision, direction, and control over how the work is done, not when and where.
If you’re unsure of your SDC status, or have a general query about the new rules around IR35 and how they will affect you, please feel free to get in touch.
Nicola J O'Sullivan -
Founder | Xero Champion | IR35 Expert
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