Contractors: IR35 & general discussion

[SOL111]

hyphen said:

egomeister said:

SOL111 said:

Interesting.

How are these companies going to manage resource now?

It wouldn't work in aerospace. Right now there are no major projects running, hence not many contractors. If companies like Airbus hired permanent staff during peak periods, they'd have major redundancy issues in periods like now.

It's something that used to happen before contracting and they suffered as a result. After all, who wants to work under a revolving door environment when you have mortgages to pay?

I'm sure there's rationale but am wondering if these blue chip companies you're talking about really needed contractors in the first place, if they're happy to drop it from their resource plans.

Contractors?

Yeah ok wise guys

[SOL111]

hyphen said:

If these are contractors you are wanting to hand perm roles to, then they were not hired on projects with a limited scope, but working as BAU.

It's this IR35 abuse growth by employers such as the one you work for that has led to the crack down.

So why did your employer choose contractors over permies? What advantages did they see, that they will now be losing.

I fear you're right but reckon it's shortcut management.

It's easier to have contractors than the hassle of permanent staff as you have to give permies rights, hugs and touchy feely nonsense.

Personally I hope all this crap vaporises so that proper contractors can get back to business.

ETA. But I realise I'm dreaming as the industry will stay buggered.

[hyphen]

SOL111 said:

I fear you're right but reckon it's shortcut management.

It's easier to have contractors than the hassle of permanent staff as you have to give permies rights, hugs and touchy feely nonsense.

Personally I hope all this crap vaporises so that proper contractors can get back to business.

One of the big reasons for contractors is also that they come out of local budgets and are not on HR headcounts.

When the next round of redundancies come around, how many will they reduce your now larger oermie headcount by!

[Olivera]

And then she said:

Olivera said:

What qualifies you to make that employment status assessment? Genuine question. Only an assessment made by an employment law solicitor is satisfactory.

<crap>

So you're not qualified, glad to clear that up. You're most certainly leaving the door open to legal action or an employment tribunal.

[And then she]

hyphen said:

If these are contractors you are wanting to hand perm roles to, then they were not hired on projects with a limited scope, but working as BAU.

It's this IR35 abuse growth by employers such as the one you work for that has led to the crack down.

So why did your employer choose contractors over permies? What advantages did they see, that they will now be losing.

I was not involved in the hiring of any of these people, but in general:

• those on projects of well defined and limited scope are more likely to fall outside of IR35 and (whether they are or not), if we're not bothered about keeping them in the business after the end of that project we will not be offering employment.
• several have joined for a specific purpose and then been offered further work, or ended up doing BAU. These may or may not be offered employment, very much case-by-case.
• some have been hired to cover an absent employee's role, or specifically for BAU. These roles will transition to permanent/FTC employment contracts and won't go back.

"IR35 abuse" is equally the fault of "contractors", many of whom have already posted in this thread and others about not wanting to be tied down to an employment, or enjoying the high life of their tax avaoidance. Without this stick/carrot from the government, how would we go about employing these people?

[And then she]

Olivera said:

So you're not qualified, glad to clear that up. You're most certainly leaving the door open to legal action or an employment tribunal.

I'm not a solicitor specialising in employment law, but my colleague is, and she's been taking guidance from me about this.

The reason, which seems to have passed you by, is that IR35 is *tax* law, not employment law. HMRC have made it very clear that an assessment of 'disguised employment' for tax purposes is not an assessment of employment status, albeit in the Good Work Plan, published last year following the Taylor Report, the government said it sought to bring these tests together. This is something that we and many other businesses will need to deal with in future, but that's not the change that's coming in April.

[Countdown]

Olivera said:

What qualifies you to make that employment status assessment? Genuine question. Only an assessment made by an employment law solicitor is satisfactory.

Satisfactory for whom? We told the IT Director to use the CES Tool and made our decisions based on that, we've erred on the side of caution but, actually, in the main it's clear cut whether they fall inside or outside of IR35.

[98elise]

Tim330 said:

troika said:

Surely it would be outrageous not to allow legitimate pension contributions into a SIPP? Mind you, I’d put nothing past them. We’re just planning our road trips for next spring now the better half will pack it in!

I'm sure I read that it will no longer be possible to make a company contribution to your sipp on ir35 caught contracts post April 2020. You can still make a personal contribution but then you only get it the tax back on self assessment not the employees NIC. You may be able to use the umbrella scheme to contribute to a pension before NIC deductions but I certainly won't be opening another pension scheme.

And it will be post employers NI if it's a personal contribution.

[Olivera]

Countdown said:

Satisfactory for whom? We told the IT Director to use the CES Tool and made our decisions based on that, we've erred on the side of caution but, actually, in the main it's clear cut whether they fall inside or outside of IR35.

Satisfactory for both parties. The CEST tool output is not legally binding, just mere guidance, and concerns have been raised regarding its accuracy. It would be highly prudent to use its output alongside legal guidance.

[SOL111]

Countdown said:

Satisfactory for whom? We told the IT Director to use the CES Tool and made our decisions based on that, we've erred on the side of caution but, actually, in the main it's clear cut whether they fall inside or outside of IR35.

That's interesting.

I'm not being a doom merchant but HMRC use the CES tool for challenging contractors but in court they've had very little success.

So basically if you're using the tool then it's likely that you'll put people inside, who may well be deemed outside in a court of law.

I'm not having a go as you're just following government guidelines but is a bit sad, unless you're using additional guidelines/criteria?

[Countdown]

SOL111 said:

That's interesting.

I'm not being a doom merchant but HMRC use the CES tool for challenging contractors but in court they've had very little success.

So basically if you're using the tool then it's likely that you'll put people inside, who may well be deemed outside in a court of law.

I'm not having a go as you're just following government guidelines but is a bit sad, unless you're using additional guidelines/criteria?

I don't think we're putting people "inside" when they should be "outside" because it's normally very clear-cut. In some cases they were literally replacing permanent member of staff on the IT helpdesk (meaning they were based in the office, from 8-6, with a line manager, not doing anything that was project related, not able to send a substitute, not providing their own equipment, not choosing where they could work from). the IT Director was just being lazy in terms of recruitment. However, if there WAS any doubt, we would always err on the side of caution.

We still employ consultants but they get a Purchase Order for a defined piece of work and a defined timescale in which to do it. How they do it, where they do it, and even WHo does it is down to them.

[Countdown]

Olivera said:

Countdown said:

Satisfactory for whom? We told the IT Director to use the CES Tool and made our decisions based on that, we've erred on the side of caution but, actually, in the main it's clear cut whether they fall inside or outside of IR35.

Satisfactory for both parties. The CEST tool output is not legally binding, just mere guidance, and concerns have been raised regarding its accuracy. It would be highly prudent to use its output alongside legal guidance.

"Satisfactory for the Employer" means absolutely no risk of being fined. It doesn't matter (to me) whether the CES tool is legally binding or not. In practical terms if it's somebody we HAVE to employ because they have a unique skillset then we would adjust the hourly rate to compensate them for any Tax and NI that we deduct from their salary, but we make sure that payments to them go via payroll.

[Olivera]

Countdown said:

"Satisfactory for the Employer" means absolutely no risk of being fined. It doesn't matter (to me) whether the CES tool is legally binding or not. In practical terms if it's somebody we HAVE to employ because they have a unique skillset then we would adjust the hourly rate to compensate them for any Tax and NI that we deduct from their salary, but we make sure that payments to them go via payroll.

HMRC have already been clear, the engaging company must make a fair and accurate assessment of employment status for tax, not just take a conservative view for the benefit of the engaging company.

I wouldn't hesitate to legally challenge a company making an unfair blanket 'inside' assessment, even retrospectively.

[anonymous-user]

hyphen said:

And then she said:

From your description, you are definitely a contractor, conducting a business-to-business relationship with your clients, so have nothing to worry about from the forthcoming changes.

The people who will see a change, and quite rightly so, are the IT/HR/etc. bums on seats in disguised employment. I would expect that several of the more outraged posters on this thread fall squarely within this description.

For context, I work in a large white-collar business which has 50-100 "contractors" working in the UK offices, and I'm (partly) responsible for applying the new IR35 rules to this population. I'm expecting at least 90% to fall within IR35 and we'll either offer employment or instruct the agency to deduct PAYE. We've not finalised our remuneration strategy yet, but any employments would need to fit within existing paybands and there is very little appetite to increase contract rates to 'compensate' anyone who remains as a contractor.

If these are contractors you are wanting to hand perm roles to, then they were not hired on projects with a limited scope, but working as BAU.

It's this IR35 abuse growth by employers such as the one you work for that has led to the crack down.

So why did your employer choose contractors over permies? What advantages did they see, that they will now be losing.

Partly supply and demand. Projects that have a budget attached make it easier to hire the right skills/capacity at short notice. However it makes no difference to IR35 status whether it’s BAU or not. In London the lifestyle fits in with the transient, gig economy so finding experienced employees in the IT market who are prepared to work for a salary is very difficult. Market is saturated with chancers who’ve inflated their skills profile to command a higher day rate. Greed basically. We are also hiring perm equivalent roles and already gaining access to ex contractors which is good for us as we can consider them part of the organisation and culture.

As for playing God with contractors, we are qualified to make a judgement on behalf of our organisation using the guidance provided, nothing more. To protect ourselves we will err on the side of caution or in time insist all our temporary workers are under umbrella companies paying PAYE.

[Countdown]

Olivera said:

HMRC have already been clear, the engaging company must make a fair and accurate assessment of employment status for tax, not just take a conservative view for the benefit of the engaging company.

I wouldn't hesitate to legally challenge a company making an unfair blanket 'inside' assessment, even retrospectively.

We wouldn't do it retrospectively, i think that would be quite unfair. We'd terminate the Contract and then offer the person a FTC as an employee.

Have any companies been sued at the "contract offer" stage? I'm not sure how that would be possible.

[blank]

Pit Pony said:

What about BAe Systems, Rolls Royce Plc, Collins Aerospace, JLR, GE, Siemens? ASSYSTEM?

Contractors at JLR (and almost everywhere else in the automotive industry in the UK) are just employees that are outside of most headcounts and pay less tax. They will pretty much all be inside IR35.

I've worked as a genuine contractor (I was a full time employee of a large ish company, contracted out to another company for a specific project). I was known as "outsourced" rather than a contractor and there were huge differences between my working practices and those of normal "contractors" working for their own Ltd companies.

[egomeister]

blank said:

Contractors at JLR (and almost everywhere else in the automotive industry in the UK) are just employees that are outside of most headcounts and pay less tax. They will pretty much all be inside IR35.

I've worked as a genuine contractor (I was a full time employee of a large ish company, contracted out to another company for a specific project). I was known as "outsourced" rather than a contractor and there were huge differences between my working practices and those of normal "contractors" working for their own Ltd companies.

JLR definitely take the piss sometimes, hiring graduates as contractors for example - what kind of hard to find knowledge and experience are they bringing?

I fear your example of being seconded to a customer will become more prevalent, with big consulting companies as the employer and sending people to the end customer. The worst of both worlds if you ask me!

[SOL111]

Countdown said:

I don't think we're putting people "inside" when they should be "outside" because it's normally very clear-cut. In some cases they were literally replacing permanent member of staff on the IT helpdesk (meaning they were based in the office, from 8-6, with a line manager, not doing anything that was project related, not able to send a substitute, not providing their own equipment, not choosing where they could work from). the IT Director was just being lazy in terms of recruitment. However, if there WAS any doubt, we would always err on the side of caution.

We still employ consultants but they get a Purchase Order for a defined piece of work and a defined timescale in which to do it. How they do it, where they do it, and even WHo does it is down to them.

Thanks for the info. Much appreciated.

Apologies for the questions but have you received government training/guidance (other than the info/tools already available) so that all companies are approaching this consistently or are HMRC leaving the interpretation to you?

I guess I'm asking whether your company is getting government approval so that you don't get challenged or are you making the decision and happy to stand by your classifications and take it to court if need be.

[Countdown]

SOL111 said:

Thanks for the info. Much appreciated.

Apologies for the questions but have you received government training/guidance (other than the info/tools already available) so that all companies are approaching this consistently or are HMRC leaving the interpretation to you?

I guess I'm asking whether your company is getting government approval so that you don't get challenged or are you making the decision and happy to stand by your classifications and take it to court if need be.

We had a training session with some people from the MoJ’s HR Dept. It consisted basically of some slides prepared by HMT/HMRC. It wasn’t detailed guidance/training and I’m certainly not an expert in it by any means. We were pointed to the CES tool, the returns we needed to fill in each year, and the penalties for non-compliance.

If we had ever been challenged we would have been on our own but I cant see “how” we’d be challenged, given that if the person was already employed as a Contractor we would simply terminate the contract, and any future roles would be offered on a FTC via PAYE

In fact (apologies for poor memory) I’m sure there was a pro-forma for dealing with people who were currently employed as Contractors but fell within IR35 - the options were (i) move onto Payroll or (Ii) terminate contract. However I think (back then) anybody whose contract was under 6 months wouldn’t result in a penalty for the employer even if they fell under IR35. That loophole closed in April 2018.

[SOL111]

Countdown said:

We had a training session with some people from the MoJ’s HR Dept. It consisted basically of some slides prepared by HMT/HMRC. It wasn’t detailed guidance/training and I’m certainly not an expert in it by any means. We were pointed to the CES tool, the returns we needed to fill in each year, and the penalties for non-compliance.

If we had ever been challenged we would have been on our own but I cant see “how” we’d be challenged, given that if the person was already employed as a Contractor we would simply terminate the contract, and any future roles would be offered on a FTC via PAYE

In fact (apologies for poor memory) I’m sure there was a pro-forma for dealing with people who were currently employed as Contractors but fell within IR35 - the options were (i) move onto Payroll or (Ii) terminate contract. However I think (back then) anybody whose contract was under 6 months wouldn’t result in a penalty for the employer even if they fell under IR35. That loophole closed in April 2018.

Thanks again.

I think your company may well have more distinct roles and it's possible that aerospace might have too but that's not stopped HMRC taking a contractor to court and losing.

I think the concern is that this poor chap was deemed outside by his IR35 advisor but HMRC begged to differ, due to a different interpretation.

Consequently, there seems to be an instance where you could be deemed outside by law but inside by interpretation. I completely get that companies need to protect themselves but fear that they will suffer if they are unwilling to offer permanent positions but lose their contractors.