Contractors: IR35 & general discussion

[zippy3x]

Countdown said:

Plumber supplies his own tools
So can a developer if client agrees, HMRC says, doesn't count

Plumber usually chooses what time and on what days he's coming in to work
Plumber agrees work rota, can't be here when inconvenient for client, just like contractor

Plumber can send somebody else if he chooses
If i hire a plumber, i will do it off recommendation, I would pay more for someone recommended. If someone else turns up, they'd be sent home. In short i would have a veto on change of personnel, same as contractor

Plumber isn't working alongside an employee doing exactly the same job
Not in a domestic environment, but a friend is a plasterer. He works for large builders on new estates and will do several hundred homes in a go. Not sure if there is such a thing as a permie plasterer, but if there was, he'd look like one. Taken to the extreme, we could just make everyone contractors

Plumber may well have 2/3 clients at the same time.
So, conceiveably, might a contractor, HMRC says number of concurrent contracts irrelevant, every contract assessed in it's own right

Plumbers aren't worried that HMRC are going to treat them as inside IR35

[Gecko1978]

zippy3x said:

Countdown said:

Plumber supplies his own tools
So can a developer if client agrees, HMRC says, doesn't count

Plumber usually chooses what time and on what days he's coming in to work
Plumber agrees work rota, can't be here when inconvenient for client, just like contractor

Plumber can send somebody else if he chooses
If i hire a plumber, i will do it off recommendation, I would pay more for someone recommended. If someone else turns up, they'd be sent home. In short i would have a veto on change of personnel, same as contractor

Plumber isn't working alongside an employee doing exactly the same job
Not in a domestic environment, but a friend is a plasterer. He works for large builders on new estates and will do several hundred homes in a go. Not sure if there is such a thing as a permie plasterer, but if there was, he'd look like one. Taken to the extreme, we could just make everyone contractors

Plumber may well have 2/3 clients at the same time.
So, conceiveably, might a contractor, HMRC says number of concurrent contracts irrelevant, every contract assessed in it's own right

Plumbers aren't worried that HMRC are going to treat them as inside IR35

As a contractor in the city, I am able to supply my own equipment but most clients prefer you to use there own for data security reasons, The client tells me what they want, then I work out how to do it, I work along side perm staff byut have a different role / job title. As my ltd has more than me in it we do have more than one client but like a plumber I can not be in two places at once, but I can work for one client on a monday in the morning an a second in the evening.

HMRC do not want the above facts to count they want me to pay more tax end of. If I am forced to take a perm role then my tax will fall as perm slaries just do not compare.

Also while money is the main motivation (for work in general) I also contract so I avoid, HR rubbish, Corporate BBQ's, Appraisals, Development plans and all the other rubbish that matters not 1 jot in reality.

Contracting is more honest, you like me you pay me you don't I leave.

HR and the government to an extent have spent decades telling people money is not the main goal it does not motivate you, so take less pay, pay more tax etc...let me tell you I was never so motivated than when I discovered I could get paid 2x the salary and not have to do all the pointless stuff.

10 years perm 10 years contracting I know what I have enjoyed more.

[anonymous-user]

And then she said:

They're not - I was recently at a meeting with a Deloitte Director who looks after the compliance for their off-payroll workforce, termed "associates". These workers mainly exist for their consulting business and are generally installed on-site at clients. Given that some of Deloitte's work is for public sector clients, they have been dealing with the IR35 compliance requirements for a couple of years now.

Sorry I was talking about the majority. Of course they would subcontract certain roles. I think substitution would be the key factor here and they can always insist they go on payroll/personal fixed term contract if necessary

[And then she]

Gecko1978 said:

As my ltd has more than me in it

This can certainly be an indication of being in business on your own account, rather than an employee, but how are the profits allocated? If it's 'eat what you kill' HMRC will simply look through it.

Gecko1978 said:

we do have more than one client but like a plumber I can not be in two places at once, but I can work for one client on a monday in the morning an a second in the evening.

Despite the doom-mongering above, this clearly can be presented as (fairly weak) evidence of being an independent contractor, albeit the stronger couterfactual evidence pointing towards employment would be a contract which says you *can't* work for anyone else (or only with "client" approval).

Gecko1978 said:

HMRC do not want the above facts to count they want me to pay more tax end of. If I am forced to take a perm role then my tax will fall as perm slaries just do not compare.

As above, this is a silly line of thinking. You might end up getting paid a lower salary as an employee, but it will be taxed (and NI'd) at a higher rate than as a contractor. The additional money that you're not paid doesn't simply disappear - it gets paid to the company's other employees, or distributed to shareholders, each subject to their own tax (assuming it stays in the UK, but that's a different question).

Gecko1978 said:

Also while money is the main motivation (for work in general) I also contract so I avoid, HR rubbish, Corporate BBQ's, Appraisals, Development plans and all the other rubbish that matters not 1 jot in reality.

Contracting is more honest, you like me you pay me you don't I leave.

All this is fine - remain a contractor, but understand that your client may, using its own interpretation of your working arrangements, decide you're within IR35 and withhold taxes accordingly.

Edited by And then she on Friday 19th July 14:13

[Gecko1978]

And then she said:

All this is fine - remain a contractor, but understand that your client may, using its own interpretation of your working arrangements, decide you're within IR35 and withhold taxes accordingly.

I think that is the point the "client" will look at what is most cost effective to them and make a call, they will not consider the impact on my business. Which is why I say it's not about IR35 or not its about squeezing tax £'s out of firms and saving costs.

I have always felt clients don't want "Contractors" to be perm even if they often treat us like we are. Simply as I have said for me its money as the main motivator. Perm Gross Salaries on the whole are less than my Gross day rate so net net I earn more contracting. If that is no longer an option and I have to get a perm job (to young to retire) then so be it but this will longer term change corporate culture as if the only game in town is perm jobs then I want the one that pays the most and will do whatever to get that.

What this means is things I do now as a contractor (working all night to get things delivered to plan, doing my own training an development) I will continue to do which is something I do not observe many perm staff doing. Over time formr contractors will rise up the ladder an hire like minded people an push out others. The fox will enter the hen house you might say. An I am not sure this is actually what firms want (people like large teams an easy ride and hire contractors to fill gaps). While not universally certain I think this would be the longer term change and a more aggresive work an market place could result.

Being a contractor is the same but subtly different to being perm but its the small things that end up resulting in big change.

Oh an my ltd we own equal shares so if one brings in more one month than the other well that is just that dividends are not affected in terms of the % split.

[anonymous-user]

Gecko1978 said:

Also while money is the main motivation (for work in general) I also contract so I avoid, HR rubbish, Corporate BBQ's, Appraisals, Development plans and all the other rubbish that matters not 1 jot in reality.

Contracting is more honest, you like me you pay me you don't I leave.

Yet it’s important to the companies you do the work for. I have over 650 people working for me, 200 or so contractors. We treat them all as people and in return they accept the company culture, everyone gets along and we are respectful of what we can and cannot ask our contractors to do.

If you came to one of my team and said “pay me or I leave” you’ll be shown the door, that’s if you were lucky enough to be there in the first place.

[Pothole]

98elise said:

ChevronB19 said:

Totally genuine question, asked purely from my own ignorance - what’s the problem with this?

Contractors will have to pay employers NI on top of employees NI (extra 14%) and cannot retain money in the company to cover periods out of work.

They will get no employee benefits of being an employee.

I'm a contractor, and have decided to retire when my contract ends in September. I will go from paying high rate tax to being on JSA

Edited by 98elise on Friday 12th July 01:02

If you're retired, you're not a jobseeker, or are you just misusing the term to mean giving up contracting?

[egomeister]

wormus said:

Gecko1978 said:

Contracting is more honest, you like me you pay me you don't I leave.

If you came to one of my team and said “pay me or I leave” you’ll be shown the door, that’s if you were lucky enough to be there in the first place.

That's not what he said at all though is it?

[Gecko1978]

wormus said:

Gecko1978 said:

Also while money is the main motivation (for work in general) I also contract so I avoid, HR rubbish, Corporate BBQ's, Appraisals, Development plans and all the other rubbish that matters not 1 jot in reality.

Contracting is more honest, you like me you pay me you don't I leave.

Yet it’s important to the companies you do the work for. I have over 650 people working for me, 200 or so contractors. We treat them all as people and in return they accept the company culture, everyone gets along and we are respectful of what we can and cannot ask our contractors to do.

If you came to one of my team and said “pay me or I leave” you’ll be shown the door, that’s if you were lucky enough to be there in the first place.

you would hire me if you needed my skill set, your cultural policy, team dynamic etc matters not 1 jot to me. Like any person I go to a client and have to act as they do - just like a plumber takes of his boots in your house but not at say an industrial unit. You act according to the role - but and its important here I do not care about you, your firm, your culture, I care about getting paid.

That said you will only pay me if I do a good job, don't upset or aggravate your other staff and generally fit in etc. That's simple business common sense. Or put it another way, in 2008 when things turned bad, did we all care about each other look to corporate values and nicities....or did some firms leave there staff out to dry abandon any facade of caring and generally the people at the top look after number 1....talking about you D Fold and Lehman.

2008 showed in black an white quite how secure we all were or weren't and how much value corporate culture really counted for when push came to shove.

Any place of work is better when we are respectful to each other but all of your 650 employees have a cost and a value and when times or tough bottom lines are what matters (I assume here that in the bad times you may actually really hate having to take the tough decisions but assume you will as that benefits the firm / shareholders).


So my attitude in the work place does not convey my lack of enthusiasm for "Corporate tosh" but I run a business and need to ensure it makes a profit pays its shareholders, that is done by working hard an smart and not by caring about the small stuff that does not matter.

[purplepolarbear]

I'm currently perm but have contracted. The confusion for me is where the line is drawn between being a real business and disguised employee, and I thought I was in one category but never completely certain. The examples I saw were far more obviously inside or outside IR35 than my situation. If I was in charge I would avoid confusing questions like "Are you subject to direction and control" and say that a limited company can pay a maximum dividend of the total amount spent on:

Business expenses (e.g. accountancy)
Stationery/Phones/Travel
Rent
Tools
Payments to staff or subcontractors (other than the director)

Businesses like a plumber who rents an office and employs a labourer that are unquestionably "Real businesses" will have high costs and therefore probably be able to pay all their profit as dividend. A contractor who works in a similar way to a perm will have low costs (and have to take most of his income as salary). Something in between (e.g. the contractor who does lots of short gigs and spends a lot on promoting himself and sometimes subcontracts work) will be able to take more as dividends.

[Gecko1978]

purplepolarbear said:

I'm currently perm but have contracted. The confusion for me is where the line is drawn between being a real business and disguised employee, and I thought I was in one category but never completely certain. The examples I saw were far more obviously inside or outside IR35 than my situation. If I was in charge I would avoid confusing questions like "Are you subject to direction and control" and say that a limited company can pay a maximum dividend of the total amount spent on:

Business expenses (e.g. accountancy)
Stationery/Phones/Travel
Rent
Tools
Payments to staff or subcontractors (other than the director)

Businesses like a plumber who rents an office and employs a labourer that are unquestionably "Real businesses" will have high costs and therefore probably be able to pay all their profit as dividend. A contractor who works in a similar way to a perm will have low costs (and have to take most of his income as salary). Something in between (e.g. the contractor who does lots of short gigs and spends a lot on promoting himself and sometimes subcontracts work) will be able to take more as dividends.

For me the change I think came when I stopped doing what I had done as a perm (BAU type work in banking) and taking on Contracts that were related to projects. These have a start and an end goal (not always an end date as things do not always go to plan). In terms of direction day to day you ask for requirements or you gather them from the client, you document them review then develop them. Then when the project is done or your part is done you leave.

What often happens is a client likes your work so they have another project starting and will ask you to do that too, sometimes you say yet other times you say no - you are not obliged to do it an they are not obliged to offer it to you. Which brings me back to money, I need it the client has it and if they offer me more at the end, ratrely is there a long drawn out renogociation I just take it an sign another contract.

But projects get canned, jobs just dry up, firms change there mind about what they want an you can find your skill set is no longer what they want. The person who said they would show me the door for example might if they knew I did not care about their corporate culture but oddly I don't write that on my LinkedIn page or CV and given one current role is at a firm of around that size who knows maybe I work for them already lol.

IR35 was a complex set of questions to try an kill the one man band. I agree BAU work I did 8 years ago was really just another employee type role, but it benefits both the firm (they dont have to keep me) and me (I got paid more). Its win win.

The motivation is not protecting staff or even the issue of disguised employees its simply about money pure an simple.

In many ways it would be better if there were no perm roles just contracts everyone gets paid if they perform fit in etc, but I doubt 90% of workers would like the risk of that.

[Piersman2]

Gecko1978 said:

The motivation is not protecting staff or even the issue of disguised employees its simply about money pure an simple.

In many ways it would be better if there were no perm roles just contracts everyone gets paid if they perform fit in etc, but I doubt 90% of workers would like the risk of that.

Agree with everything you say, but the last two points are particularly pertinent.

It IS all about the money to the companies. They employ contractors because they're cheaper when all is taken into account and they want the specific skills for a specific time. Every additional permie creates a pyramid of support above it in addition to the direct costs of that permie. Permie's tend to forget just how much hidden cost there is to having a Permie onboarded.

Secondly, for those Permie's that seem to not understand this and accuse the contractors of being arrogant, money grabbing, mercenaries (which could be true, although I'm not totally sold on the arrogant bit! ), they need to appreciate that they are being given a whole list of preferential conditions, benefits and securities a contractor does not get. At the end of the day, if they're jealous and confident in their own abilities in the open market, they can get out there and do it as well. But most that are too scared and safe in their little bubbles to do it.

All IMHO of course.

[Gecko1978]

Piersman2 said:

Gecko1978 said:

The motivation is not protecting staff or even the issue of disguised employees its simply about money pure an simple.

In many ways it would be better if there were no perm roles just contracts everyone gets paid if they perform fit in etc, but I doubt 90% of workers would like the risk of that.

Agree with everything you say, but the last two points are particularly pertinent.

It IS all about the money to the companies. They employ contractors because they're cheaper when all is taken into account and they want the specific skills for a specific time. Every additional permie creates a pyramid of support above it in addition to the direct costs of that permie. Permie's tend to forget just how much hidden cost there is to having a Permie onboarded.

Secondly, for those Permie's that seem to not understand this and accuse the contractors of being arrogant, money grabbing, mercenaries (which could be true, although I'm not totally sold on the arrogant bit! ), they need to appreciate that they are being given a whole list of preferential conditions, benefits and securities a contractor does not get. At the end of the day, if they're jealous and confident in their own abilities in the open market, they can get out there and do it as well. But most that are too scared and safe in their little bubbles to do it.

All IMHO of course.

I am aware saying its just about money comes across as crass etc though I as a self employed person am I believe just realistic. HMRC really do't care if I am inside or outside IR35 they just want to get more tax in and assume this will do it forgetting that firms will incure costs and pay less.

Large firms export profits overseas so as was sugegsted earlier the money will go around the economey to others is just not a sure thing.

But I have faith that contracting has been about for years there are also many agencies that specialise in providing these resources are we to assume they will now go out of business I think not.

In the end it will be a damp squib, I have also heard from 1 firm the options they are putting out.

1) Go perm
2) fixed term contract
3) stay as you are but take 20% less

So if that is nor clear as day its just about money I don't know what is. Firm in question is a well known financial institution

[98elise]

Pothole said:

98elise said:

ChevronB19 said:

Totally genuine question, asked purely from my own ignorance - what’s the problem with this?

Contractors will have to pay employers NI on top of employees NI (extra 14%) and cannot retain money in the company to cover periods out of work.

They will get no employee benefits of being an employee.

I'm a contractor, and have decided to retire when my contract ends in September. I will go from paying high rate tax to being on JSA

Edited by 98elise on Friday 12th July 01:02

If you're retired, you're not a jobseeker, or are you just misusing the term to mean giving up contracting?

Yes. Retire as in get out of contracting, IT, and the rat race. Not sure what that holds for me in reality. Been thinking about moving abroad and buying some holiday let's.

[Gecko1978]

And then she said:

This is a really silly argument. That extra money doesn't disappear; it just doesn't get paid to YOU.

Whoever else receives it will pay tax on it instead.

Your understanding of economics in the context of the state's motivation for IR35 is flawed. Firms pay perm staff less end of, the saving which is realised as extra profit then gets transferred to a lower tax regime and the state looses out. The shareholders benefit and the UK goverment and economy looses out all due to some misguided politics of envy. it is true in terms of income tax I pay less than a like for like perm but I pay CT, Vat and Tax on dividends I also spend my larger income in the UK.

Large multinationals do not IIRC HSBC paid net tax of 8% Starbucks UK O% Amazon 0% Google the same, but all of them create jobs and put money into the UK just not the UK goverment. It's actually an odd policy for a Tory goverment perhaps Boris will pull it who knows

[SOL111]

zippy3x said:

Countdown said:

Plumber supplies his own tools
So can a developer if client agrees, HMRC says, doesn't count

Plumber usually chooses what time and on what days he's coming in to work
Plumber agrees work rota, can't be here when inconvenient for client, just like contractor

Plumber can send somebody else if he chooses
If i hire a plumber, i will do it off recommendation, I would pay more for someone recommended. If someone else turns up, they'd be sent home. In short i would have a veto on change of personnel, same as contractor

Plumber isn't working alongside an employee doing exactly the same job
Not in a domestic environment, but a friend is a plasterer. He works for large builders on new estates and will do several hundred homes in a go. Not sure if there is such a thing as a permie plasterer, but if there was, he'd look like one. Taken to the extreme, we could just make everyone contractors

Plumber may well have 2/3 clients at the same time.
So, conceiveably, might a contractor, HMRC says number of concurrent contracts irrelevant, every contract assessed in it's own right

Plumbers aren't worried that HMRC are going to treat them as inside IR35

I've been away (end of term) and didn't fancy a spat (peace wormus btw ) but this exactly.

This really does highlight the complexity and difficulty with classifying roles and zippy3x is quite right imo.

Security often dictates that I can't use my own hardware/software and have had defence contracts where it's just not feasible.

Also in law, it's not whether you have substituted but whether you can in principle.

MBF Design services vs HMRC is an interesting case and especially relevant to my client base. It's worth a read if you've not read it previously

[FredClogs]

Re: Plumbers. It was the high profile case of Pimlico plumbing and their contractors / employees which brought the whole "gig economy" conversation to the mass media. I'd say plumber's have got as much to worry about as anyone else by the constant creep of Hmrcs tentacles into business earning and distributions.

[Countdown]

SOL111 said:

I've been away (end of term) and didn't fancy a spat (peace wormus btw ) but this exactly.

This really does highlight the complexity and difficulty with classifying roles and zippy3x is quite right imo.

Security often dictates that I can't use my own hardware/software and have had defence contracts where it's just not feasible.

Also in law, it's not whether you have substituted but whether you can in principle.

MBF Design services vs HMRC is an interesting case and especially relevant to my client base. It's worth a read if you've not read it previously

Not wishing a spat either - however (IMHO) Zippy's post is taking examples of how each factor (individually) could be argued as being outside IR35.

in reality - it's easy relatively to differentiate between disguised permies and genuine Contractors. Gecko talked about project roles above - we have an Infrastructure team who do nothing but projects, month in month out. When one project finishes they start on another, sometimes they'll be working on multiple projects at the same time. They're all on PAYE. We have also had contractors working on SAP. There's a huge difference in the service they provide, the way they work, and our relationship with them.

Now I accept that all relationships may not be as clear cut as the ones we have - but it seems to me that a lot of the arguments put forward for being outside IR35 are quite convoluted and artificial, intended more as a technical/legal defence rather than reflecting the substance of the role.

Anyway, I think we're going to end up going round and round in circles. I think FDs will take all steps necessary to ensure their backside is covered in terms of HMRC, they will then look to ensuring the work gets done. Whether that means increasing day rates or taking people on as permanent staff remains to be seen.

[manracer]

Can I ask, how does a fixed term contract ensure our of IR35 status?

[Olivera]

Countdown said:

I think FDs will take all steps necessary to ensure their backside is covered in terms of HMRC, they will then look to ensuring the work gets done. Whether that means increasing day rates or taking people on as permanent staff remains to be seen.

Indeed, but it should also include a fair and competant assessment of employment status for tax, and ruling contracts as outside of IR35 where that is appropriate.