Contracting question
Discussion
A mate of mine makes his living doing 'energy efficiency assessments' of property. He is self employed, a client gives him details of a property to inspect for insulation etc, he does so then writes up a report and sends a bill to the client. All the work he is currently doing is for the same property firm and he is a bit worried that they will want him to work through a LTD company to avoid being hit for employers NI etc.
Are HMRC likely to accuse the client of employing him? If so is it purely the clients problem or his problem as well?
Are HMRC likely to accuse the client of employing him? If so is it purely the clients problem or his problem as well?
Dr Jekyll said:
But can he get away with being self employed? That's his main concern rather than IR35.
But incidentally, I thought it was the individual client relationship that was either in or out of IR35. So would additional clients necessarily help?
My own understanding, from looking quite hard for myself, and chatting to a fair few contractors, was that the more clients you have, and can thus direct your own work (i.e. say I can fit you in on Thursday, rather than Yes, Boss) the less likely it would be that you would be looked at hard enough to actually examine the wording of the contract. And his, and his client's view is significantly less important than HMRCs view. At the moment, if he looks like an employee, behaves like and employee, but is paid via invoice, he's an employee.But incidentally, I thought it was the individual client relationship that was either in or out of IR35. So would additional clients necessarily help?
Put it this way. If the HMRC come to you and say 'you are a disguised employee' and you say 'but I'm self employed, I don't have a company therefore am not taking dividends or doing anything else devious to reduce tax or NI' are you in the clear IR35 wise?
My clients insist on me working through a LTD company, but that's for their benefit not mine. I'm not quite sure why his don't, but surely if he can get away with self employment that works in his favour.
My clients insist on me working through a LTD company, but that's for their benefit not mine. I'm not quite sure why his don't, but surely if he can get away with self employment that works in his favour.
randlemarcus said:
Dr Jekyll said:
But can he get away with being self employed? That's his main concern rather than IR35.
But incidentally, I thought it was the individual client relationship that was either in or out of IR35. So would additional clients necessarily help?
My own understanding, from looking quite hard for myself, and chatting to a fair few contractors, was that the more clients you have, and can thus direct your own work (i.e. say I can fit you in on Thursday, rather than Yes, Boss) the less likely it would be that you would be looked at hard enough to actually examine the wording of the contract. And his, and his client's view is significantly less important than HMRCs view. At the moment, if he looks like an employee, behaves like and employee, but is paid via invoice, he's an employee.But incidentally, I thought it was the individual client relationship that was either in or out of IR35. So would additional clients necessarily help?
A further twist are the 'umbrella' companies that offer to set you up to cater for these circumstances - I decided to not go this route because a)They charge for the service b) if the s
t hits the fan then HMRC come to me not them for payment .... I'd prefer to have control myself.Does his client prohibit him from taking other jobs, is he working for one client for convenience?
I'm not quite up on IR35 still (it came in about 18 months before I stopped contracting) but my thoughts would be if he was requested to do a survey one at a time (rather than to take them all on within a fixed time period), and is paid by the survey rather than by the month, I don't see how he would fall into the realms of IR35 and could set his LTD co up as entity and invite work from other companies as well.
I'm not quite up on IR35 still (it came in about 18 months before I stopped contracting) but my thoughts would be if he was requested to do a survey one at a time (rather than to take them all on within a fixed time period), and is paid by the survey rather than by the month, I don't see how he would fall into the realms of IR35 and could set his LTD co up as entity and invite work from other companies as well.
Dr Jekyll said:
But can he get away with being self employed? That's his main concern rather than IR35.
But incidentally, I thought it was the individual client relationship that was either in or out of IR35. So would additional clients necessarily help?
Yes to both parts of the second paragraph.But incidentally, I thought it was the individual client relationship that was either in or out of IR35. So would additional clients necessarily help?
Whilst any one contract may be tested for IR35 - the fact that your turnover is derived from multiple clients is generally seen as an indicator of being 'in business'. I have a full-time contract at the moment but very regularly work for other clients - and will tell the client of the 'main contract' when I'm available to work, or when I'm booked by other clients. It's not a case of 'requesting leave' - I simply tell them when I'm not available - and I make no hiding of the fact that I'm involved with other projects and in some cases have other contractual obligations. It's not a definite 'get out of IR35' defence but it does in some way help distinguish between a commercial relationship and one of employment; staff of the same client would be in breach of their contracts if they were to start working for other employers and 'picking/choosing' their days.
IR35 protects the contractor and exposes the contractee.
If a person is REALLY an employee of an organisation but is being PAID as if they were a self employed individual, then it is the contractor/employer who will be held responsible for any underpaid taxes and NI.
If the individual operates through their own limited company, if HMRC decides that the limited company is acting as an "intermediary" to prevent the employer from being properly handled as an employee, then it is the limited company that will be held liable for unpaid tax or NI. This is when the rules of IR35 are brought into use.
Protecting your company from IR35 is a lot more complex than having more than one "customer". In certain circumstances, HMRC can deem that the relationship between a limited company and one of its customers needs IR35 to be applied, even if it has other customers where IR35 is not applicable.
It's all about the nature of the relationship between the two entities and how much like an "employment" the relationship is.
If a person is REALLY an employee of an organisation but is being PAID as if they were a self employed individual, then it is the contractor/employer who will be held responsible for any underpaid taxes and NI.
If the individual operates through their own limited company, if HMRC decides that the limited company is acting as an "intermediary" to prevent the employer from being properly handled as an employee, then it is the limited company that will be held liable for unpaid tax or NI. This is when the rules of IR35 are brought into use.
Protecting your company from IR35 is a lot more complex than having more than one "customer". In certain circumstances, HMRC can deem that the relationship between a limited company and one of its customers needs IR35 to be applied, even if it has other customers where IR35 is not applicable.
It's all about the nature of the relationship between the two entities and how much like an "employment" the relationship is.
Speaking to him last night, the situation is that he does 80-90% of his work for a single client, but does use his own equipment and have his own insurance. So there is a chance he can stay outside IR35, but equally this could mean the client might be persuaded to let him remain self employed.
Is there any advantage to a one man business operating through a LTD company as opposed to the (apparently simpler) option of self employment?
Is there any advantage to a one man business operating through a LTD company as opposed to the (apparently simpler) option of self employment?
If IR35 is avoided, then there are definitely tax and legal advantages if operating through a limited company - especially if the income levels would be sufficient for the individual to have to pay Higher rate tax IF they were employees or self employed.
IR35 IS an important factor to consider when ANY individual decides to engage with their "employer" through a limited company set up.
The company must be able to prove that the relationship between the two entities is a proper trading relationship and not an employee/employer type relationship.
To be able to prove that the relationship is a trading one and not an employment one, the activities have to demonstrate normal aspects of a trading relationship -
the company supplies its own tools and equipment
the company largely controls and plans the work it carries out
the company can hire other people as substitutes if the original individual is not available
the company is financially responsible for the work it carries out. In other words, if it all goes wrong, the company may not get paid or may have to financially compensate its customer or third parties affected by the errors made
the company has adequate insurances in place that a normal business would be expected to hold - third party, employer's etc
the company only gets paid when it carries out work. Employees get paid whether they are attending work or not - such as when sick or on holidays
the individual who is operating through his own company distances himself from any associations with the employees of the customer. In other words, he does not socialise or partake in any perks, jollies,dos etc that may be organised by the customer for its staff.
It's all about attitude and relationship.
IR35 IS an important factor to consider when ANY individual decides to engage with their "employer" through a limited company set up.
The company must be able to prove that the relationship between the two entities is a proper trading relationship and not an employee/employer type relationship.
To be able to prove that the relationship is a trading one and not an employment one, the activities have to demonstrate normal aspects of a trading relationship -
the company supplies its own tools and equipment
the company largely controls and plans the work it carries out
the company can hire other people as substitutes if the original individual is not available
the company is financially responsible for the work it carries out. In other words, if it all goes wrong, the company may not get paid or may have to financially compensate its customer or third parties affected by the errors made
the company has adequate insurances in place that a normal business would be expected to hold - third party, employer's etc
the company only gets paid when it carries out work. Employees get paid whether they are attending work or not - such as when sick or on holidays
the individual who is operating through his own company distances himself from any associations with the employees of the customer. In other words, he does not socialise or partake in any perks, jollies,dos etc that may be organised by the customer for its staff.
It's all about attitude and relationship.
Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff