Freelancer with an IR35 headache – advice sought!

DoctorStrange

I do agree,  but in my experience it's easier to say "I'm outside cos CEST says so" than it is to argue the rules don't apply. 

Potbellypig

deedee71 said:

Have they performed the CEST test and deemed the engagement inside IR35?  It's not automatically inside just because they're a large company.  If they have deemed the role inside, the worst thing you can do is stay with them.  The whole time you've been there could be viewed by HMRC as inside, meaning you could face a hefty tax bill.  

I'll caveat the above with I've not heard of this happening to anyone after  the public sector changes in 2017. 
Unless they substantially up the day rate you're definitely going to take home less.  The umbrella will be around £22 a week.  You'll have both Ni's deducted - employer's is 13.8%.  You'll be taxed as if you'll be earning this amount for the whole year (obviously you'll get it back but you're wanting to minimise admin hassle)..  You even have a deduction for the apprenticeship levy (because the umbrella company has a payroll above a certain threshold so they pass it to you).

 My advise is to stick with the smaller companies for as long as you can.   I've not heard of it being extended to small companies but wouldn't be surprised. 

Incorrect. HMRC have specifically stated they won't be backdating this.

DoctorStrange

All HMRC have said its they won't "automatically" look back into previous years,  "unless they suspect fraud"

Declaring yourself outside when you were really inside would potentially constitute fraud and, frankly, it's unwise to rely on HMRCs word for anything. 

(Not that this affects the OP, who I don't think would have anything to worry about).

deedee71

Potbellypig said:

deedee71 said:

Have they performed the CEST test and deemed the engagement inside IR35?  It's not automatically inside just because they're a large company.  If they have deemed the role inside, the worst thing you can do is stay with them.  The whole time you've been there could be viewed by HMRC as inside, meaning you could face a hefty tax bill.  

I'll caveat the above with I've not heard of this happening to anyone after  the public sector changes in 2017. 
Unless they substantially up the day rate you're definitely going to take home less.  The umbrella will be around £22 a week.  You'll have both Ni's deducted - employer's is 13.8%.  You'll be taxed as if you'll be earning this amount for the whole year (obviously you'll get it back but you're wanting to minimise admin hassle)..  You even have a deduction for the apprenticeship levy (because the umbrella company has a payroll above a certain threshold so they pass it to you).

 My advise is to stick with the smaller companies for as long as you can.   I've not heard of it being extended to small companies but wouldn't be surprised. 

Incorrect. HMRC have specifically stated they won't be backdating this.

If that is the case for private sector in 2021 I'm glad to hear it.  It was most definitely how it was represented in the public sector in 2017.  A very worrying time for many contractors.

bpk101

Thanks for all the advice so far. Having done some more research on it all, it appears IR35 does in fact have an impact on my engagement with this company as a sole trader. As this article suggests:

"Becoming a sole trader does not circumvent the IR35 rules, if you are not truly working in business on your own account, then you are likely to be treated as an employee for tax purposes, regardless of the business structure you trade under."
https://www.itcontracting.com/sole-trader-ir35/

Essentially, the nature of the relationship between myself and the hiring company satisfy's various determining factors for IR35 compliance, such as:

1. Yes, the company who hire me can provide input as to how the work is carried out.
(Of course they can... who would, for example, hire an architect service if you couldn't have an opinion on what your house looked like?)
2. The company who hire me can dictate where the work is carried out.
(Although if not satisfactory to me I can reach an agreement with them, or not take the engagement. In that regard it's still my decision).

Other factors are listed here: https://www.contractorcalculator.co.uk/docs/ir35campaign/HowCESTWorks-ByIR35Shield.pdf

So, given the company in question are not going to budge on this, if i want to engage with them further it will need to be via a Fixed Term Contract or Umbrella Company.

Going back my initial post then... are either of these even worth the effort given most of my engagements come from 'small' companies who are currently IR35 exempt?

And what calculations do i need to do to ensure i walk away with no less than i'm currently getting?

DoctorStrange

First things first, all they've said is you're in scope to be checked. They haven't said you're inside yet.

They're using CEST to determine your status, so if that says "Outside" I think you're still OK? 

The three main tests for "employee status" are

Right of Substitution (ROS)
Mutuality of Obligation (MOO)
Supervision, Direction and Control (SDC).

All three must be present in order to be an employee. 

CEST ignores MOO for reasons too long t get into here, so I'd focus on the other two. 

So,  are you able to pay someone else to help on the projects? Or must you complete all work personally?

Does the client have the right to tell you how to do the work? This doesn't include telling you what they want,  it's how you produce it that's important. If I want my walls painted blue, I'm telling the painter what to deliver, so he's not my employee. If I have to tell him which undercoat to use,  how much paint to put on the brush,  how to cut in the edges,  how to clean up afterwards, then he's essentially my employee.

So,  does your client tell you exactly what they want and how to deliver it? If not,  you're outside.

DoctorStrange

Additional:

If they're saying you're inside, you're entitled to see the SDS which will have the reasons on it. Ask for that, check which answers are incorrect and you have the right to appeal.

DoctorStrange

Second additional:
If you're happy to accept inside  of chose the FTC over the brolly. In terms of rate uplift, I'd start with 40% and see how that lands. 

You can play with a tax calculator to work out the net pay and see the difference,  but 35-40% seems the ballpark for most people

EDIT,
If choosing FTC, make sure there's no clause preventing you from your other,  freelance work