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  • FIRST POST
    • trailingspouse
    • By trailingspouse 19th Jul 17, 8:20 AM
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    trailingspouse
    Can we talk about IR35 again please?
    • #1
    • 19th Jul 17, 8:20 AM
    Can we talk about IR35 again please? 19th Jul 17 at 8:20 AM
    Trying to find out if I need to be concerned about IR35 for my business. I've just tried using the HMRC tool, and it reckons the legislation doesn't apply to us - but they didn't really ask the right questions, in my opinion.

    So - we run a limited company, and my husband is our lead contractor (we sub-contract others as required). He has just had his contract with his current client renewed for a further 6 months, bringing us close to 2 years with the same client. He has performed several different roles during this time.

    We have a right of substitution clause in the contract (although we've never done it), he only works at the client site 3-4 days a week, does work for other clients on days when he's not working for this client, and also works for this client from our office on occasion.

    He doesn't use the staff canteen, doesn't need to ask for time off (although as a courtesy he tells them if he's not going to be there, and has cancelled plans in the past if he is needed on site), and isn't provided with any tools - but he uses their computer at work because he wouldn't be allowed to access their system with his own laptop for security reasons. No-one supervises his work on a day-to-day basis, but of course what he does is decided by discussion with the client and individual members of staff.

    He does however socialise with staff outside of work (leaving do's, out to lunch with the 'boss', a funeral).

    Coming up to the 2 year anniversary, should we be worried? My gut feeling is that we're OK - but in the absence of official help, I would appreciate a second opinion.
Page 1
    • tacpot12
    • By tacpot12 19th Jul 17, 8:40 AM
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    tacpot12
    • #2
    • 19th Jul 17, 8:40 AM
    • #2
    • 19th Jul 17, 8:40 AM
    My view is that it does a apply to the lead contractor and probably yourself in this case.

    The fact he does "roles" and has held a number is key. And that what he does is discussed with the client. A true contractor would only deliver what the contract says he is to deliver; and that can't just be 5 days of "work". It the client says what the "work" is then he is directing the contractor.

    If your office is your home, you are on shakier ground still, it helps that the lead contractor does work for other customers during the week, but in itself I don't think this is enough.

    If you contract through the same company but don't work for other clients your employment Is more certainly caught by IR35.

    I would recommend the lead contractor pays the tax due under IR35 and stays with the employer as long as they will let him.
    • trailingspouse
    • By trailingspouse 19th Jul 17, 8:58 AM
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    trailingspouse
    • #3
    • 19th Jul 17, 8:58 AM
    • #3
    • 19th Jul 17, 8:58 AM
    It's in the nature of what he does that he discusses his work with the client - he is an expert in his field, and so has an opinion. In fact, that's why they use him. I wouldn't say the client directs him - in fact much of the time he is directing them - but obviously there is professional discussion. Does it make a difference that each role had a separate contract?

    Yes, our office is a room in our house - why does that make a difference? This is the first time that's been raised as a potential problem.

    We already pay quite enough to HMRC via Corporation Tax, tax on dividends etc etc without offering to pay more!!
    • trailingspouse
    • By trailingspouse 19th Jul 17, 11:13 AM
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    trailingspouse
    • #4
    • 19th Jul 17, 11:13 AM
    • #4
    • 19th Jul 17, 11:13 AM
    I've just noticed that you also said IR35 would apply to me as well. I'm a director, but I do no work at client sites - my role is finance and business development (basically anything that doesn't involve the technical aspects of the job), so I really don't see that it could apply to me.

    Heck, it's bad enough thinking it might apply to him!
    • paddyrg
    • By paddyrg 19th Jul 17, 1:04 PM
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    paddyrg
    • #5
    • 19th Jul 17, 1:04 PM
    • #5
    • 19th Jul 17, 1:04 PM
    I think he's possibly outside of IR35, if he's working for multiple clients and setting his own hours, but 2 years main contract suggests he may be a hidden employee. But it doesn't matter what I think - it's what HMRC thinks that counts.

    How's this for an option - assume he is INSIDE IR35 and withhold the extra tax that would be the case in a separate account. If it comes down to a fight with HMRC, at least you've got the funds standing by and it's not a shock.
    • trailingspouse
    • By trailingspouse 19th Jul 17, 5:17 PM
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    trailingspouse
    • #6
    • 19th Jul 17, 5:17 PM
    • #6
    • 19th Jul 17, 5:17 PM
    I like that idea paddyrg - but how would you work it out? Presumably if they think he's an employee they can't also think he's running a business and therefore charge Corporation Tax? Or VAT? Am I being naive thinking HMRC can't have it both ways?

    We are a bona fide business, and if hitting the 2 year mark meant HMRC thought he was an employee he would just look for another contract - but why should he have to do that? And why should the client suffer (they keep asking him back for a reason, and he is very good at what he does).

    It's ironic that, as you say, it's what HMRC think that matters, but it's impossible to get a definitive answer. At the end of the day we're just trying to make a living, and we're not trying to avoid any of our financial responsibilities.
    • tacpot12
    • By tacpot12 19th Jul 17, 6:21 PM
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    tacpot12
    • #7
    • 19th Jul 17, 6:21 PM
    • #7
    • 19th Jul 17, 6:21 PM
    What is the web address of your website?

    Do you have a standard set of T&Cs in case a client or agency doesn't have their own that they want a director to sign?
    • Prothet of Doom
    • By Prothet of Doom 19th Jul 17, 7:22 PM
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    Prothet of Doom
    • #8
    • 19th Jul 17, 7:22 PM
    What the X%*! has 2 years got to do with it ?
    • #8
    • 19th Jul 17, 7:22 PM

    He has just had his contract with his current client renewed for a further 6 months, bringing us close to 2 years with the same client.

    Coming up to the 2 year anniversary, should we be worried?

    I would appreciate a second opinion.
    Originally posted by trailingspouse
    Yes you should be worried. not by IR35 but by your lack of understanding on the implications of 2 years.

    Common misconception is that 2 years has anything to do with IR35.

    HMRC will take each and every contract on it's own merit, so if you have a contract for one day a week for one week, if the contract is wrong and the way you are working is wrong it could be caught by IR35 or you could have a contract for 20 years which isn't ever going to be caught by IR35.

    2 Years matters to Clients because it's at that point lower paid agency workers could actually start to claim employment rights. https://www.gov.uk/dismiss-staff/eligibility-to-claim-unfair-dismissal

    This is why one client I worked "with" had an extended tenure committee, who looked at the risks associated with extending any consultant's contract beyond 2 years. In my case the commitee decided that they did not have the skills I had in house, and I was unlikely to ever want to claim unfair dismissal as that would impact my tax status and cost me more than it cost them.

    2 years Also matters if you have travelling expenses.

    https://www.gov.uk/government/consultations/travel-and-subsistence-framework-discussion-paper/travel-and-subsistence-discussion-paper

    http://www.contractorcalculator.co.uk/temporary_workplace_rules_contractors.aspx

    https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32080

    Basically as a director you are also an employee, and if you spend time at one client and you know it is going to be more than 2 years, then immediately your ltd company can no longer claim travel expenses. This has a major tax implication on Contractors who are travelling by plane (I worked with 3 guys in the East Midlands who Flew from Belfast to East Midlands Every week, and I had a 6 month contract where I started Monday by Driving for 30 mins to the station at 5am, catching a train south, and eventually getting to the client at 10 am. My hotel was the cheapest I could find and total cost of train, hotel and food and parking at the station was about £550 a week. So had I been required too long. Imagine having to pay tax and Ni on that first ?
    I have met contractors who move every 2 years to avoid this issue and I met one who admitted he asked for an 11 month contract extension as 12 months would take him over 2 years and if you know on day one of a contract that it's more than 2 years you can't claim from day one.

    Now IR35. I wish clients understood this more or even at all. So many examples from other Consultants and Contractors of clients who have no idea, and probably just wanted someone permanent, but couldn't either find them quick enough, or couldn't get there boss to sanction another addition to the head count.
    • Prothet of Doom
    • By Prothet of Doom 19th Jul 17, 7:25 PM
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    Prothet of Doom
    • #9
    • 19th Jul 17, 7:25 PM
    • #9
    • 19th Jul 17, 7:25 PM
    .

    We already pay quite enough to HMRC via Corporation Tax, tax on dividends etc etc without offering to pay more!!
    Originally posted by trailingspouse
    To be fair, put the figures in this calculator.

    https://www.uktaxcalculators.co.uk/dividend-vs-salary.php

    There's an advantage but not as much as it was.
    • trailingspouse
    • By trailingspouse 19th Jul 17, 9:52 PM
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    trailingspouse
    Yes you should be worried. not by IR35 but by your lack of understanding on the implications of 2 years.
    Originally posted by Prothet of Doom
    And yet -

    Common misconception is that 2 years has anything to do with IR35.
    Originally posted by Prothet of Doom
    Thank you for putting me right. It's comforting to know that I'm not alone, so I'm going to let the unnecessary sarcasm slide.

    So - to recap. I don't need to worry about IR35 purely because of the 2 year thing, but I should perhaps be worried about it for other reasons. And the 2 year thing makes a difference when it comes to claiming expenses. There may be some issue with the fact that we use a room in our own home as an office. I may possibly fall foul of the rules myself, despite never having set foot on a client's premises for money (I really don't see how that could be right).

    I understand that at the end of the day it's down to HMRC, and their opinion - but something definitive would make life easier. It's a bit like driving along a road, and the police can stop you for speeding - but only they know what the speed limit is.

    As this is an anonymous forum, you'll forgive me for not posting our website address. If you needed our services, you would be able to find us.
    Last edited by trailingspouse; 19-07-2017 at 9:58 PM.
    • Prothet of Doom
    • By Prothet of Doom 19th Jul 17, 10:10 PM
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    Prothet of Doom
    those 2 quotes are not mutually exclusive you know

    You should worry about your lack of understanding (especially as it's all there to be explained on line if you look)

    But so too should all those other people who hold a common misconception.

    Anyway. I think most clients I have met do not even know what IR35 is, don't know the implications for their companies. So many examples. Like

    We've done you some business cards
    This is how you book holidays
    There's the PPE cupboard
    Have some paper to write on
    Just manage this employee for us
    Could you have a look at this (completely unrelated thing to the project you are working on)

    Just No or FRO
    • trailingspouse
    • By trailingspouse 19th Jul 17, 10:12 PM
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    trailingspouse
    I've just checked out the figures on the link you posted (for which, many thanks Prothet) - there really isn't a lot in it, is there. However, as we are both directors, and we both take our personal allowance as salary and equivalent dividends, there is still an advantage to working as a limited.

    I suspect the government has 'husband and wife' limiteds in its sights, as they're seen as a means of avoiding tax. Which is a shame for those of us who actually do work in the business and earn our money fair and square. And ironic, as we were running the business before we were married...
    • Prothet of Doom
    • By Prothet of Doom 19th Jul 17, 10:14 PM
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    Prothet of Doom
    Working on clients data off-site in your own office with your own computer is a good indication that you are not an employee. How many employees can do that ?

    As is not working the hours that employees work. Turn up at lunch time having worked somewhere else in the morning is the best indication to them that you are not an employee.
    • Prothet of Doom
    • By Prothet of Doom 19th Jul 17, 10:21 PM
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    Prothet of Doom
    I've just checked out the figures on the link you posted (for which, many thanks Prothet) - there really isn't a lot in it, is there. However, as we are both directors, and we both take our personal allowance as salary and equivalent dividends, there is still an advantage to working as a limited.

    I suspect the government has 'husband and wife' limiteds in its sights, as they're seen as a means of avoiding tax. Which is a shame for those of us who actually do work in the business and earn our money fair and square. And ironic, as we were running the business before we were married...
    Originally posted by trailingspouse
    The main advantage I see is that of limited liability. I might have 2 million quid of professional indemnity insurance, but I advise on the manufacture of products that cost 10 times that. So if the £2M doesn't cover it, I stand to loose just £36 that it cost to set up.

    Because my wife "only" does the admin, we choose for her to be an employee and not. Now I'm thinking of having a round of redundancies and wonder what tax free payout she'd accept without taking me to a tribunal

    Only joking. without her I'd forget to invoice and get confused over the Vat. Plus Employee Christmas party
    • trailingspouse
    • By trailingspouse 19th Jul 17, 10:34 PM
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    trailingspouse
    Yes, he is pretty flexible - works 3 days most weeks, but not necessarily the same three days (and although he informs them as a courtesy, he doesn't need to ask permission to vary the days), will work from the office when it's appropriate to do so, and works for other clients at other times (although I don't think he's ever worked for two clients on the same day!! I'll see what I can do...)

    Having done a bit of research online as well as asking on here, my take on it all is that each individual element might not be enough to prove you are a contractor, but together it builds up a picture which shows HMRC that yes, you are indeed a bona fide contractor, or no you're not.

    Which begs another question - at what point do HMRC start checking out whether IR35 applies to you?
    • trailingspouse
    • By trailingspouse 19th Jul 17, 10:41 PM
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    trailingspouse
    Ha ha - I made a mistake once, and OH threatened to sack me. As it was a minor mistake, I said I would claim unfair dismissal. The settlement figure was going to be quite high...
    • tacpot12
    • By tacpot12 19th Jul 17, 10:58 PM
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    tacpot12
    Does the company have Professional Liability insurance?
    • Makkusu
    • By Makkusu 13th Aug 17, 1:28 AM
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    Makkusu
    Yes, he is pretty flexible - works 3 days most weeks, but not necessarily the same three days (and although he informs them as a courtesy, he doesn't need to ask permission to vary the days), will work from the office when it's appropriate to do so, and works for other clients at other times (although I don't think he's ever worked for two clients on the same day!! I'll see what I can do...)

    Having done a bit of research online as well as asking on here, my take on it all is that each individual element might not be enough to prove you are a contractor, but together it builds up a picture which shows HMRC that yes, you are indeed a bona fide contractor, or no you're not.

    Which begs another question - at what point do HMRC start checking out whether IR35 applies to you?
    Originally posted by trailingspouse
    Just to chip in, IR35 is contract specific, simply having several contracts on the go at the same time doesn't strengthen or weaken the IR35 status in the slightest. It's about working conditions termed between the two businesses, not the contractor/employees lifestyle.

    As someone else pointed out, 24 months has nothing to do with IR35. It's also a common rumour that HMRC start investigating you after 2 years, not true at all, just another odd assumption made by uneducated people.
    • TheTracker
    • By TheTracker 13th Aug 17, 3:47 PM
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    TheTracker
    Does the company have Professional Liability insurance?
    Originally posted by tacpot12
    The key point is whether the contract places liability on the service provider, not whether the provider has taken out insurance to cover such liability. Unless such insurance is specified in the contract, the decision is with the directors of the company and absence of such insurance not an IR35 indicator.
    • trailingspouse
    • By trailingspouse 16th Aug 17, 7:36 PM
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    trailingspouse
    Yes, we have Professional Indemnity insurance. And yes, our contracts specify our liabilities.
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