Invoicing and IR35
Discussion
I have a project where I'm going to be paid a monthly retainer for a period of time. My ltd company will be doing the invoicing. The remit of the project is to design a database for a company. I have sole input as to the design etc, the customer merely tells me what they require from the end result. I have no hours of work nor do I report to anyone other than for feedback purposes.
This is just a single project that runs alongside my existing networking support company. My other customers provide the majority of my income.
I will be submitting a VAT invoice monthly but how should I describe/word the invoice for the monthly retainer to ensure the tax man doesn't try to grab a cut as well?
This is just a single project that runs alongside my existing networking support company. My other customers provide the majority of my income.
I will be submitting a VAT invoice monthly but how should I describe/word the invoice for the monthly retainer to ensure the tax man doesn't try to grab a cut as well?
The first thing Hector will look at will be the contract. Get that nailed and it won't matter about the invoice. I think what you need to do is give a value to the piece of work (Monthly payment x time period) and stick that in the contract, and then make that payable in monthly installments. That is what I have had in a few of my "IR35 friendly" contracts.
If you can bound the work with a deliverable, cost and time period, you should be well on the way to showing there is no MOO.
If you can bound the work with a deliverable, cost and time period, you should be well on the way to showing there is no MOO.
The Griffalo said:
Err MOO? 
Fromhttp://www.mikelewis.co.uk/ir35.html
Mutuality of obligation (MOO) is a difficult concept but basically you want to avoid it. If there is no MOO then there can be no employment. You need to be free to decline work, such as work not within the scope of your contract. The end client should not have any obligation to find you work when your contracted work finishes. Some types of work are more likely to generate MOO than others, such as support work. Other types are less likely to generate MOO like specific task based contracts. Longer contracts are more likely to generate MOO. There is no hard rule here but beware those over 12 months. Overall it will be especially difficult for the Revenue to argue MOO exists when there is no direct contract between the worker and the end client creating any obligations from one to the other.
Sorry, Mutuality of Obligation.
You need to show that your client has no obligation to provide any more work beyond the scope of the initial database, and even if they do, you have no obligation to accept it.
So a contract with the standard anti-MOO clauses, and a very firm definition of what it is you are to provide, will go a long way to being outside IR35.
You need to show that your client has no obligation to provide any more work beyond the scope of the initial database, and even if they do, you have no obligation to accept it.
So a contract with the standard anti-MOO clauses, and a very firm definition of what it is you are to provide, will go a long way to being outside IR35.
I'd word the invoice as "advance payments" or "stage payments", rather than a retainer. See if you can build in some advance deliverables to go along with that. Generally the less it looks like you are getting "paid", with no risk to yourself, the less likely it is to be construed as employment. Personally, and this is just me, I'd do the work and invoice for the lot at the end, when the jobs done. Absolutely no confusion then, you have delivered a product and invoiced for it.
That does backfire though; I did a couple of months work earlier this year which had to be written off. Still, these are the joys of self employment, no?
That does backfire though; I did a couple of months work earlier this year which had to be written off. Still, these are the joys of self employment, no?
Plotloss said:
If you're billing this client using the same commercial entity as all your other clients I wouldnt have thought that IR35 applies to be honest.
Thats more aimed at personal service companies and contractors with only one client.
No no no no no! IR35 can be, has to be, applied to every specific contract in isolation. It can help that you are doing other work yes, but that in itself does not take a specific contract outside of IR35.Thats more aimed at personal service companies and contractors with only one client.
VictorMeldrew said:
Plotloss said:
If you're billing this client using the same commercial entity as all your other clients I wouldnt have thought that IR35 applies to be honest.
Thats more aimed at personal service companies and contractors with only one client.
No no no no no! IR35 can be, has to be, applied to every specific contract in isolation. It can help that you are doing other work yes, but that in itself does not take a specific contract outside of IR35.Thats more aimed at personal service companies and contractors with only one client.
Surely IR35 isnt specific to IT contractors but all PSCs?
Why would I, for instance, as a company owner billing some private individuals for one off jobs and billing developers on an ongoing basis including service pay any heed to IR35 at all?
Personally I can't see how a retainer will get you caught by IR35. Many companies have a law firm on retainer but that doesn't make the solicitors their employees.
Still, with the Revenues rabid hatred of small businesses it wouldn't surprise me if a retainer was a bad thing though.
I agree with an earlier post - stage payments for milestones / deliverable work is the way to go. Just make sure you have the requirements set in stone and any scope creep is subject to negotiation. This isn't anything to do with IR35 and more to do with not getting shafted by the client.
If the client have no direction or control, there is no requirement for set hours or being on-site other than meetings, and there are firm deliverables with payment linked to them then I really can't see how this work can be caught by IR35.
Still, with the Revenues rabid hatred of small businesses it wouldn't surprise me if a retainer was a bad thing though.
I agree with an earlier post - stage payments for milestones / deliverable work is the way to go. Just make sure you have the requirements set in stone and any scope creep is subject to negotiation. This isn't anything to do with IR35 and more to do with not getting shafted by the client.
If the client have no direction or control, there is no requirement for set hours or being on-site other than meetings, and there are firm deliverables with payment linked to them then I really can't see how this work can be caught by IR35.
The line is where the IR interpret it to be. 
Yes, any PSC is potentially subject to it - North Sea divers, actors, nurses, milkmen, all sorts of professions.
I've been through (and survived) an IR35 investigation, so I have an inkling of the sort of things that attract the interest of those friendly IR types. The bottom line is you have to assess each contract in isolation on its own merits, as that is what the IR will do. It's possible for example that they would view a nice fat monthly retainer with no penalty for ultimate non-delivery, as a very strong indicator that the contract was in effect one of employment. MOO is just one consideration. Being in business in your own right is another. Business risk is another.
Its a complex business, and it pays to eliminate all possible avenues of interpretation that might lead to a contract being deemed employment. Personally I can't see this work being caught, but with the IR you just never know. Leave the door open a crack and they'll kick it down.
And it IS the contract that is caught by IR35, not the person/PSC.
Yes, any PSC is potentially subject to it - North Sea divers, actors, nurses, milkmen, all sorts of professions.
I've been through (and survived) an IR35 investigation, so I have an inkling of the sort of things that attract the interest of those friendly IR types. The bottom line is you have to assess each contract in isolation on its own merits, as that is what the IR will do. It's possible for example that they would view a nice fat monthly retainer with no penalty for ultimate non-delivery, as a very strong indicator that the contract was in effect one of employment. MOO is just one consideration. Being in business in your own right is another. Business risk is another.
Its a complex business, and it pays to eliminate all possible avenues of interpretation that might lead to a contract being deemed employment. Personally I can't see this work being caught, but with the IR you just never know. Leave the door open a crack and they'll kick it down.
And it IS the contract that is caught by IR35, not the person/PSC.
Edited by VictorMeldrew on Tuesday 28th August 19:03
Plotloss said:
So where is the line of disembarcation between company and personal service company?
There is none. Legally there is no such thing as a "Personal Service Company". My company is as much a company as yours is (assuming you have incorporated, Matt, and are not still a Sole Trader).The Revenue like to refer to PSCs as it perpetrates the myth that somehow it is possible for a legally registered Private Limited Company that so happens to be so small that the Director is the only significant employee and fee generator to somehow not be a "proper" company.
Plotloss said:
Surely IR35 isnt specific to IT contractors but all PSCs?
Indeed. And all small businesses, even yours, if the Revenue can show that you are a disguised employee of your client then they'll hit you with the full weight of IR35 whether you "deserve" (sic) or not. Say that your company were contracted by a large housing developer to install AV kit alongside their own installers. The Revenue would try to "prove" (sic) that you were no different from the employee installers and hence you were a "disguised employee" and KER-CHING tax you at PAYE / NI income levels (and still have your Corporation Tax, Employers NI and VAT off you as well, the bastards).Plotloss said:
Why would I, for instance, as a company owner billing some private individuals for one off jobs and billing developers on an ongoing basis including service pay any heed to IR35 at all?
No, and that is the problem. Until IR35 is as much a bind for clients as it is for providers then there is no reason for the client to co-operate. However, you can bet your last shekel that if being caught by IR35 automatically gave you employee benefits and rights from your "disguised employer" that there wouldn't be a contract in the land caught by it. Edited by JonRB on Tuesday 28th August 20:24
I can understand IR35 (understand is probably the wrong word but you know what I mean) being applicable to a corporate entity with only one client providing ongoing work.
But I cant see how they would apply it to a company providing services for a number of clients on a piece meal basis which is what Rob's company does.
I was always under the perhaps misguided impression that the IR applied the 'duck test' to IR35 in so far as if it walks, talks and smells like a duck, it is in fact a duck. So contractors working on client kit in client offices were in a far more dodgy position tax wise than a company that provides products/solutions when required.
The proposed IR591 if its still under consideration is a far more ominous taxation prospect admittedly but surely as far as 35 goes a key driver must be the amount of clients a corporate entity services over a given time frame. Otherwise companies like Ikon or EDS for instance could also come into IR35.
But I cant see how they would apply it to a company providing services for a number of clients on a piece meal basis which is what Rob's company does.
I was always under the perhaps misguided impression that the IR applied the 'duck test' to IR35 in so far as if it walks, talks and smells like a duck, it is in fact a duck. So contractors working on client kit in client offices were in a far more dodgy position tax wise than a company that provides products/solutions when required.
The proposed IR591 if its still under consideration is a far more ominous taxation prospect admittedly but surely as far as 35 goes a key driver must be the amount of clients a corporate entity services over a given time frame. Otherwise companies like Ikon or EDS for instance could also come into IR35.
VictorMeldrew said:
The line is where the IR interpret it to be.
Yes, any PSC is potentially subject to it - North Sea divers, actors, nurses, milkmen, all sorts of professions.
I've been through (and survived) an IR35 investigation, so I have an inkling of the sort of things that attract the interest of those friendly IR types. The bottom line is you have to assess each contract in isolation on its own merits, as that is what the IR will do. It's possible for example that they would view a nice fat monthly retainer with no penalty for ultimate non-delivery, as a very strong indicator that the contract was in effect one of employment. MOO is just one consideration. Being in business in your own right is another. Business risk is another.
Its a complex business, and it pays to eliminate all possible avenues of interpretation that might lead to a contract being deemed employment. Personally I can't see this work being caught, but with the IR you just never know. Leave the door open a crack and they'll kick it down.
And it IS the contract that is caught by IR35, not the person/PSC.
That's my concern. Normally it's not an issue, my company sells a "boxed product" ie. a service contract to look after a company network. These contracts are my bread and butter work and how I see my business continuing however this particular contract is the equivalent to me selling five contracts in one hit. Yes, any PSC is potentially subject to it - North Sea divers, actors, nurses, milkmen, all sorts of professions.
I've been through (and survived) an IR35 investigation, so I have an inkling of the sort of things that attract the interest of those friendly IR types. The bottom line is you have to assess each contract in isolation on its own merits, as that is what the IR will do. It's possible for example that they would view a nice fat monthly retainer with no penalty for ultimate non-delivery, as a very strong indicator that the contract was in effect one of employment. MOO is just one consideration. Being in business in your own right is another. Business risk is another.
Its a complex business, and it pays to eliminate all possible avenues of interpretation that might lead to a contract being deemed employment. Personally I can't see this work being caught, but with the IR you just never know. Leave the door open a crack and they'll kick it down.
And it IS the contract that is caught by IR35, not the person/PSC.
Edited by VictorMeldrew on Tuesday 28th August 19:03
Surely the fact that my company sells and services these other contracts whilst also doing this development work at the same time negates any IR35 implications?
Sadly not, my PSC has other fingers in other pies, but that does not stop a contract from being caught by IR35 if it is not worded right.
I would say you would be hugely hugely unlikely to even get an investigation. From the raw data Hector has your company won't look too much like a PSC. Nor will your SIC code I imagine. You could always insure yourself against being caught. But not worth it IMHO.
The problem with the "Duck" argument isn't that you are a duck. It is that you are a chicken who is duck for for the purposes of taxation. And the tests for Duckyness are so complex it takes a court to decide sometimes. And you don't even know you are a duck. If it were that simple, then many of us would rejoice (although effectively IR35 is a non problem nowadays), we could make financial choices based upon our status. But now we have to make them based upon "we might be a duck" which is patently unfair.
The point about EDS etc is a good one. I went from being a Consultant working for PLC, sitting at a desk on client sites, using their equipment, going to their Christmas parties (I looked and walked like a duck but wasn't) to working as Consultant for my own Ltd Co, often using my own equipment and rarely going to parties. My contract even said I was not a duck. But I might be.
I would say you would be hugely hugely unlikely to even get an investigation. From the raw data Hector has your company won't look too much like a PSC. Nor will your SIC code I imagine. You could always insure yourself against being caught. But not worth it IMHO.
The problem with the "Duck" argument isn't that you are a duck. It is that you are a chicken who is duck for for the purposes of taxation. And the tests for Duckyness are so complex it takes a court to decide sometimes. And you don't even know you are a duck. If it were that simple, then many of us would rejoice (although effectively IR35 is a non problem nowadays), we could make financial choices based upon our status. But now we have to make them based upon "we might be a duck" which is patently unfair.
The point about EDS etc is a good one. I went from being a Consultant working for PLC, sitting at a desk on client sites, using their equipment, going to their Christmas parties (I looked and walked like a duck but wasn't) to working as Consultant for my own Ltd Co, often using my own equipment and rarely going to parties. My contract even said I was not a duck. But I might be.
Hmmm, I have a thought... If I create another "boxed product" similar to my existing offerings would that be a better route?
EG I currently sell "Support contract lite" and "Support contract standard" to my existing customers. If I create "Support contract premium" and invoice that to my customer would that be safer?
EG I currently sell "Support contract lite" and "Support contract standard" to my existing customers. If I create "Support contract premium" and invoice that to my customer would that be safer?
The Griffalo said:
I have a project where I'm going to be paid a monthly retainer for a period of time. My ltd company will be doing the invoicing. The remit of the project is to design a database for a company. I have sole input as to the design etc, the customer merely tells me what they require from the end result. I have no hours of work nor do I report to anyone other than for feedback purposes.
This is just a single project that runs alongside my existing networking support company. My other customers provide the majority of my income.
I will be submitting a VAT invoice monthly but how should I describe/word the invoice for the monthly retainer to ensure the tax man doesn't try to grab a cut as well?
I don't think it matters how you describe your your invoice, what matters is whether you're a supplier or an employee. The IR regulations are actually (surprisingly) unambiguous:This is just a single project that runs alongside my existing networking support company. My other customers provide the majority of my income.
I will be submitting a VAT invoice monthly but how should I describe/word the invoice for the monthly retainer to ensure the tax man doesn't try to grab a cut as well?
As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:
Do they have to do the work themselves?
Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
Can they work a set amount of hours?
Can someone move them from task to task?
Are they paid by the hour, week, or month?
Can they get overtime pay or bonus payment?
If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:
Can they hire someone to do the work or engage helpers at their own expense?
Do they risk their own money?
Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
Do they agree to do a job for a fixed price regardless of how long the job may take?
Can they decide what work to do, how and when to do the work and where to provide the services?
Do they regularly work for a number of different people?
Do they have to correct unsatisfactory work in their own time and at their own expense?
Edited by srebbe64 on Wednesday 29th August 21:44
Would that it were so simple. You maybe are confusing employment status with employment status FOR TAXATION PURPOSES. The two are not one and the same.
You can be taxesd (under IR35) as an Employee but not be an employee for Employment law purposes (i.e. they don't have to pay you sick pay etc etc).
You can be taxesd (under IR35) as an Employee but not be an employee for Employment law purposes (i.e. they don't have to pay you sick pay etc etc).
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