Can we talk about IR35 again please?

trailingspouse · 19 July 2017 at 8:20AM

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.

tacpot12 · 19 July 2017 at 8:40AM

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 · 19 July 2017 at 8:58AM

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 · 19 July 2017 at 11:13AM

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 · 19 July 2017 at 1:04PM

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 · 19 July 2017 at 5:17PM

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 · 19 July 2017 at 6:21PM

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 · 19 July 2017 at 7:22PM

trailingspouse wrote: »

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.

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. :rotfl:

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. :mad: 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 · 19 July 2017 at 7:25PM

trailingspouse wrote: »

.

We already pay quite enough to HMRC via Corporation Tax, tax on dividends etc etc without offering to pay more!!

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 · 19 July 2017 at 9:52PM

Prothet_of_Doom wrote: »

Yes you should be worried. not by IR35 but by your lack of understanding on the implications of 2 years.

And yet -

Prothet_of_Doom wrote: »

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

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.

Prothet_of_Doom · 19 July 2017 at 10:10PM

those 2 quotes are not mutually exclusive you know :rotfl:

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. :j

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

Just No or FRO

Can we talk about IR35 again please?

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