Opinions on IR35 and its impact on contractors?

[Eric Mc]

The tests and procedures for determining whether IR35 applies have not really changed. What has changed is that the onus for performing the checks has been placed on the hirer rather than the hiree.

As a result, risk averse hirers are finding IR35 does apply in circumstances where the hiree (surprise surprise) concluded that it didn't apply.

It was always about subjective interpretation of the (poorly designed) tests and as a result we are getting a shift when the interpretation is done by the organisation that bears the risk. This is exactly the outcome HMRC was hoping for.


And for those who continue to operate through their own limited company where the hirer is deducting PAYE and NI from the company income, you should see the impact this has on the double entry accounting for that company. It is a total mess and I predict many, many personal service companies will come unstuck in the preparation of their accounts in these circumstances.

[daemon]

Eric Mc said:

And for those who continue to operate through their own limited company where the hirer is deducting PAYE and NI from the company income, you should see the impact this has on the double entry accounting for that company. It is a total mess and I predict many, many personal service companies will come unstuck in the preparation of their accounts in these circumstances.

For me - outside IR35 = paid in to company account, processed accordingly.

Inside IR35, paid in to personal account?

[arfur]

md4776 said:

Has any one man band contractor ever sent a "substitute with suitable skills" to a client instead of turning up themselves, given this is one of the clauses of most contracts as a means of demonstrating the that the contract is the right side of IR35

This happens more than you think. I certainly have done and will do again. It is not unusual to find a replacement for vaction cover in a building where there are 400 contractors :-)

[arfur]

daemon said:

LooneyTunes said:

More recent than Autoclenz, RS Dhillon and AIUI from a briefing I was sent, GP Dhillon Partnership v HMRC [2017] UKFTT 17 and MJ Quinn Integrated Services Ltd v Mr G Jones UKEAT/0301/16/JOJ[2017]) apparently don't help contractors who think that a paper analysis is all that matters...

I wonder how many of those on here have used the HMRC's ESS to check their tax status? https://www.tax.service.gov.uk/check-employment-st...

Bearing in mind HMRC has said that it will stand behind the results where questions are answered accurately, I'd assume contractors are doing it as a matter of routine, but I rather suspect they're not. HMRC doesn't store the results, but you can get a personalised report at the end of the process if you wish.

First step for me - and any contractor i know - with a new contract is to check the ESS tool, then apply the QDOS test to it and get a formal QDOS determination. If its outside of IR35, great, if its inside IR35 then i either ensure the rate works for me, or i'd look to another contract with another company.

This doesn't seem difficult?

The IR35 legislation is there to weed out disguised employment - you seem to think its some sort of "retribution" for ALL contractors who have been correctly applying the legislation to now force them to pay more tax under IR35.

Sorry, but its not.

The Government department which I provide services to do this for each and every new services procurement. All requirements go through a new team who discuss with the requirer and assess using the tool. Roles are then advertised as in or out. The agency then requires the PSC to perform the QDOS test as well before paying gross ..

It's really not hard to implement, and for a Gov dept this size of this one (>150k people) to get it right straight away shows how seriously the new "rules" were taken.

[Eric Mc]

daemon said:

For me - outside IR35 = paid in to company account, processed accordingly.

Inside IR35, paid in to personal account?

But billed by company?

You are creating a very dangerous situation if the amounts received based on invoices/billings by your limited company are being banked straight to your personal account.

Have you cleared this methodology with your accountant?

[POORCARDEALER]

Isnt the answer just make sure you have a couple of other "retained" clients who you do a little for each month, thus making sure you dont only spend all your time at one clients?

[Clockwork Cupcake]

LooneyTunes said:

Part of what makes me think that IR35 is starting to bother some contractors is that we've recently had a couple of them ask to change clauses to positively impact any IR35 contract analysis (even though the reality of how they work means they would fail many real world tests).

Are you for real? Two businesses enter into a contract together. Party A proposes clauses that Party B finds unacceptable. Party B proposes changes. It has always been thus.
(Update: I agree that Party B should not try to introduce changes that are at variance with the facts. But then again, Party B might have an expectation of those facts being true and then Party A can respond that this is not the case, and Party B can then decide not to proceed on that basis)

You clearly think all contractors are permatemps and treat them as such, so I suppose that it's not really surprising if the contracts you draw up reflect that. But it is wholly reasonable to propose changes to a contract before agreeing to them. In 20 years of contracting I don't think I have *ever* accepted the first draft of a contract because there are always changes that need to be proposed.

LooneyTunes said:

Bearing in mind HMRC has said that it will stand behind the results where questions are answered accurately, I'd assume contractors are doing it as a matter of routine, but I rather suspect they're not. HMRC doesn't store the results, but you can get a personalised report at the end of the process if you wish.

You can talk to two different tax inspectors at HMRC and get two different answers. And HMRC demonstrably do not stick to their rulings, unless it suits them.

ninja-lewis said:

HMRC and the courts can look through the wording of a contract and consider the economic reality. If they determine that a substitution clause is nothing more than a legal fig leaf - a sham intended to deceive third parties - their conclusion can be that the contract was really a contract for employment with all the associated rights and responsibilities. See for example Autoclenz v Belcher.

Yes, I am aware of that.

Where else can two businesses enter into a legally binding contract about how they wish to trade with each other, and the terms of business they wish to operate under, and then a third party can come along and tear up that legally binding contract and impose a "notional contract" that neither of the original parties want? What a way to try to run a business.

The biggest problem with IR35 is it is based on opinion and case law. It's very hard to build a solid foundation on shifting sand.

Edited by Clockwork Cupcake on Monday 20th November 14:33

[Clockwork Cupcake]

POORCARDEALER said:

Isnt the answer just make sure you have a couple of other "retained" clients who you do a little for each month, thus making sure you dont only spend all your time at one clients?

No, because each contract is, and always has been, entirely separate from others. Having multiple clients has never been a strong indication of being outside IR35

[bigandclever]

POORCARDEALER said:

Isnt the answer just make sure you have a couple of other "retained" clients who you do a little for each month, thus making sure you dont only spend all your time at one clients?

Multiple clients has no bearing on IR35 ... each contract is treated individually.

[daemon]

Eric Mc said:

daemon said:

For me - outside IR35 = paid in to company account, processed accordingly.

Inside IR35, paid in to personal account?

But billed by company?

You are creating a very dangerous situation if the amounts received based on invoices/billings by your limited company are being banked straight to your personal account.

Have you cleared this methodology with your accountant?

No, billed by my agency - Reed. They then tax via PAYE and pay me in the delta to my personal account.

Outside IR35 - billed by my LTD co, my accountant sorts the tax out, i take a wage / dividends / whatever from LTD co.

Inside IR35 - billed by my agency, they process my via PAYE, and pay me in to my personal account.

So i'm either working for my own LTD co or working for the agency dependent on whether its outside or inside IR35 respectively.

[Eric Mc]

daemon said:

No, billed by my agency - Reed. They then tax via PAYE and pay me in the delta to my personal account.

Outside IR35 - billed by my LTD co, my accountant sorts the tax out, i take a wage / dividends / whatever from LTD co.

Inside IR35 - billed by my agency, they process my via PAYE, and pay me in to my personal account.

So i'm either working for my own LTD co or working for the agency dependent on whether its outside or inside IR35 respectively.

If you are working through the agency, are you not an "agency worker" so that is not IR35 but just normal salary processed through an Employment Agency?

IR35 normally applies to intermediaries (it is referred to as "intermediary legislation" and was aimed at those operating through their own personal service companies or personal service partnerships.

[daemon]

Eric Mc said:

daemon said:

No, billed by my agency - Reed. They then tax via PAYE and pay me in the delta to my personal account.

Outside IR35 - billed by my LTD co, my accountant sorts the tax out, i take a wage / dividends / whatever from LTD co.

Inside IR35 - billed by my agency, they process my via PAYE, and pay me in to my personal account.

So i'm either working for my own LTD co or working for the agency dependent on whether its outside or inside IR35 respectively.

If you are working through the agency, are you not an "agency worker" so that is not IR35 but just normal salary processed through an Employment Agency?

IR35 normally applies to intermediaries (it is referred to as "intermediary legislation" and was aimed at those operating through their own personal service companies or personal service partnerships.

No, i'm not an agency worker.

Its a contract deemed inside IR35. I'm with REED, and thats how they handle it. They tax me at source, and pay me the net pay.

If it was outside IR35, they'd pay my LTD co the gross amount and my accountant would sort out the tax situation.

Wholly gets around the kerfuffle your describing RE: double accounting.

Why would i want my personal net pay after tax going IN to a LTD co, then being processed back out?

[essayer]

There does seem to be many definitions of ‘contractor’.

[Clockwork Cupcake]

daemon said:

No, i'm not an agency worker.

Sorry, I'm confused. You appeared to be saying that when working through REED under a contract caught by IR35, that you were employed by them, they deduct all taxes, and then give you net pay that you pay into your personal bank account. Just as if you were working for the agency like a temp.

Surely that's the definition of an agency worker?

[Countdown]

Clockwork Cupcake said:

Sorry, I'm confused. You appeared to be saying that when working through REED under a contract caught by IR35, that you were employed by them, they deduct all taxes, and then give you net pay that you pay into your personal bank account. Just as if you were working for the agency like a temp.

Surely that's the definition of an agency worker?

That's what I thought as well.

[daemon]

Clockwork Cupcake said:

daemon said:

No, i'm not an agency worker.

Sorry, I'm confused. You appeared to be saying that when working through REED under a contract caught by IR35, that you were employed by them, they deduct all taxes, and then give you net pay that you pay into your personal bank account. Just as if you were working for the agency like a temp.

Surely that's the definition of an agency worker?

I always assume agency workers to be office temps, etc, who are employed by the agency and go wherever they're told.

Thats not what i do and thats not the relationship i have with Reed. Its just an inside IR35 contract on this occasion.

The last 4 were with different agencies and outside IR35.

If someone can tell me why it would be better financially to force my net pay through my LTD co, and "double account" on it then I'm all ears.

[Eric Mc]

If you are using an agent between YOUR INTERMEDIARY and your hirer, then you should still be passing the money received through your intermediary bank account and not directly to your personal bank account.

Hirer - agency - intermediary - you, then that is an IR35 situation and money should initially go to the company bank account.

Hirer - agency - you, then that is not an IR35 situation as there is no intermediary. That is an agency worker situation as the agency has engaged YOU personally and not your intermediary limited company. Money CAN go directly to your personal bank account.

[Eric Mc]

daemon said:

If someone can tell me why it would be better financially to force my net pay through my LTD co, and "double account" on it then I'm all ears.

It's not about "better financially", it's about being aware that money that should have gone to the limited company first but went straight to you instead needs to be accounted for properly IN THE LIMITED COMPANY ACCOUNTS - and that can create all sorts of complications with your Director's Loan Account and subsequent Section 455 Corporation Tax penalties and PAYE Benefits in Kind.

As I said, you need a serious discussion with your accountant.

Note that agencies often get these arrangements wrong which can have serious ramifications for an individual.

[Clockwork Cupcake]

Eric Mc said:

If you are using an agent between YOUR INTERMEDIARY and your hirer, then you should still be passing the money received through your intermediary bank account and not directly to your personal bank account.

Hirer - agency - intermediary - you, then that is an IR35 situation and money should initially go to the company bank account.

Hirer - agency - you, then that is not an IR35 situation as there is no intermediary. That is an agency worker situation as the agency has engaged YOU personally and not your intermediary limited company. Money CAN go directly to your personal bank account.

Exactly.

If your company is involved then the money has to go through your company.
If your company is not involved and the money is going direct to your personal bank account, then you are an agency worker.

There's nothing wrong with working that way, btw.

[daemon]

Eric Mc said:

If you are using an agent between YOUR INTERMEDIARY and your hirer, then you should still be passing the money received through your intermediary bank account and not directly to your personal bank account.

Hirer - agency - intermediary - you, then that is an IR35 situation and money should initially go to the company bank account.

Hirer - agency - you, then that is not an IR35 situation as there is no intermediary. That is an agency worker situation as the agency has engaged YOU personally and not your intermediary limited company. Money CAN go directly to your personal bank account.

What Reed are doing for inside IR35 contractors is :-

Hirer - agency - umbrella (PAYE) - you.

Reed have their own umbrella company. I use them. That way there is only one ass to kick when there is a problem.

Thats the route i have with them. Therefore payments are made correctly to my personal account.

I've put this to my accountant and he has no issue with it.

For the duration of this inside IR35 contract, i am not working for / dont have my LTD co as my intermediary.

Theres a forum FAQ on it over on Contractor UK forum which describes it. Post #5

http://forums.contractoruk.com/public-sector-ir35/...

Their conclusion from the bottom of that post "FWIW, my opinion would be to not work via a limited company, inside IR35, in the public sector because of the complexity of relying on the agency to get everything right. You will also need to make sure that your limited company accounts are correct because the amount received from the agency will not match the invoice value. You will also need to ensure that the agency treats the VAT element of your invoice correctly, and that this is also accounted for properly."