Working without a contract - am I outside IR35?

fronty

I know there are people I can talk to about this but before I open that can of worms I just wanted to describe my situation and ask if anyone thinks I am suitably outside IR35 in case HMRC ever came knocking...

1. I operate a Ltd company that has been in existence for 1 year now, during that time I have invoiced about £150K in professional services fees.
2. I provide consultancy services for a US based company, my invoices are addressed to the company's US office in New Jersey, and I invoice monthly in US dollars, I hedge the currency fluctuations and they pay direct into my UK business bank account (Monzo) which converts to GBP at the prevailing rate.
3. My US customer has no other staff located in the UK, I am their sole representative. They have no UK bank account and have not registered with HMRC - they have registered a UK Ltd company with companies house but it is dormant, all my business is with the US entity, they have customers globally but I provide my services to the US entity. They deemed it simply too much hassle to get a UK account set up and satisfy all the appropriate bureaucracy simply to support one person. 
4. Because my client is located in the US, the B2B place of supply rules mean I am VAT exempt - because my VAT qualifying turnover is below the threshold (effectively £0) I have not registered for VAT and don't file VAT returns
5. I have no signed contract, we agreed my rate verbally. I work from my home office but there is nothing to say I can't work wherever I want (even abroad if I wanted to).
6. I control my own time, and can take time off whenever I like and work whatever hours I deem necessary.
7. My client could terminate me without notice, I could also terminate them without notice.
8. Because there is no contract, there are no substitution clauses, however I do know people who work in my industry I could potentially contract to replace me, subject to their availability.
9. Without a contract I know I am fully aware I am working at risk, but my relationship with my customer is based on mutual trust (having known them for many years prior to my engagement). If I was terminated then I would just get another job (either PAYE or continue contracting).
10. I pay myself a salary of £12570, and draw dividends to top up to something more reasonable
11. To cover off lost benefits, my Ltd company pays into my SIPP (salary sacrifice) and has taken out a group policy with BUPA to provide medical cover for my family
12. I currently don't have any PI insurance (or any insurance for that matter) as I'm not providing services to 3rd parties

When I started this engagement (12 months ago now) my accountant assessed me as being outside IR35 but it's always been in the back of my mind.

Are there any red flags you think I need to address to stay outside IR35?

Thanks for reading.

Grumpy_chap

fronty said:

I know there are people I can talk to about this but before I open that can of worms I just wanted to describe my situation and ask if anyone thinks I am suitably outside IR35 in case HMRC ever came knocking...

1. I operate a Ltd company that has been in existence for 1 year now, during that time I have invoiced about £150K in professional services fees.
2. I provide consultancy services for a US based company, my invoices are addressed to the company's US office in New Jersey, and I invoice monthly in US dollars, I hedge the currency fluctuations and they pay direct into my UK business bank account (Monzo) which converts to GBP at the prevailing rate.
3. My US customer has no other staff located in the UK, I am their sole representative. They have no UK bank account and have not registered with HMRC - they have registered a UK Ltd company with companies house but it is dormant, all my business is with the US entity, they have customers globally but I provide my services to the US entity. They deemed it simply too much hassle to get a UK account set up and satisfy all the appropriate bureaucracy simply to support one person. 
4. Because my client is located in the US, the B2B place of supply rules mean I am VAT exempt - because my VAT qualifying turnover is below the threshold (effectively £0) I have not registered for VAT and don't file VAT returns
5. I have no signed contract, we agreed my rate verbally. I work from my home office but there is nothing to say I can't work wherever I want (even abroad if I wanted to).
6. I control my own time, and can take time off whenever I like and work whatever hours I deem necessary.
7. My client could terminate me without notice, I could also terminate them without notice.
8. Because there is no contract, there are no substitution clauses, however I do know people who work in my industry I could potentially contract to replace me, subject to their availability.
9. Without a contract I know I am fully aware I am working at risk, but my relationship with my customer is based on mutual trust (having known them for many years prior to my engagement). If I was terminated then I would just get another job (either PAYE or continue contracting).
10. I pay myself a salary of £12570, and draw dividends to top up to something more reasonable
11. To cover off lost benefits, my Ltd company pays into my SIPP (salary sacrifice) and has taken out a group policy with BUPA to provide medical cover for my family
12. I currently don't have any PI insurance (or any insurance for that matter) as I'm not providing services to 3rd parties

When I started this engagement (12 months ago now) my accountant assessed me as being outside IR35 but it's always been in the back of my mind.

Are there any red flags you think I need to address to stay outside IR35?

Thanks for reading.

IR35 does not apply if the end Client is wholly overseas:
https://www.gov.uk/guidance/off-payroll-working-for-clients

You may have to register for the equivalent of VAT in USA.

It would be wise for your Ltd Co. to have in place basic insurance (professional indemnity, employer's liability, public and products liability) which includes USA geographical location / contracts.

DullGreyGuy

Grumpy_chap said:

fronty said:

I know there are people I can talk to about this but before I open that can of worms I just wanted to describe my situation and ask if anyone thinks I am suitably outside IR35 in case HMRC ever came knocking...

1. I operate a Ltd company that has been in existence for 1 year now, during that time I have invoiced about £150K in professional services fees.
2. I provide consultancy services for a US based company, my invoices are addressed to the company's US office in New Jersey, and I invoice monthly in US dollars, I hedge the currency fluctuations and they pay direct into my UK business bank account (Monzo) which converts to GBP at the prevailing rate.
3. My US customer has no other staff located in the UK, I am their sole representative. They have no UK bank account and have not registered with HMRC - they have registered a UK Ltd company with companies house but it is dormant, all my business is with the US entity, they have customers globally but I provide my services to the US entity. They deemed it simply too much hassle to get a UK account set up and satisfy all the appropriate bureaucracy simply to support one person. 
4. Because my client is located in the US, the B2B place of supply rules mean I am VAT exempt - because my VAT qualifying turnover is below the threshold (effectively £0) I have not registered for VAT and don't file VAT returns
5. I have no signed contract, we agreed my rate verbally. I work from my home office but there is nothing to say I can't work wherever I want (even abroad if I wanted to).
6. I control my own time, and can take time off whenever I like and work whatever hours I deem necessary.
7. My client could terminate me without notice, I could also terminate them without notice.
8. Because there is no contract, there are no substitution clauses, however I do know people who work in my industry I could potentially contract to replace me, subject to their availability.
9. Without a contract I know I am fully aware I am working at risk, but my relationship with my customer is based on mutual trust (having known them for many years prior to my engagement). If I was terminated then I would just get another job (either PAYE or continue contracting).
10. I pay myself a salary of £12570, and draw dividends to top up to something more reasonable
11. To cover off lost benefits, my Ltd company pays into my SIPP (salary sacrifice) and has taken out a group policy with BUPA to provide medical cover for my family
12. I currently don't have any PI insurance (or any insurance for that matter) as I'm not providing services to 3rd parties

When I started this engagement (12 months ago now) my accountant assessed me as being outside IR35 but it's always been in the back of my mind.

Are there any red flags you think I need to address to stay outside IR35?

Thanks for reading.

IR35 does not apply if the end Client is wholly overseas:
https://www.gov.uk/guidance/off-payroll-working-for-clients

You may have to register for the equivalent of VAT in USA.

It would be wise for your Ltd Co. to have in place basic insurance (professional indemnity, employer's liability, public and products liability) which includes USA geographical location / contracts.

You are misreading it, IR35 does apply still however where the end client is overseas its the UK based entity (ie the OP's own LTD) that makes the determination and suffers the consequences if HMRC successfully challenges the determination. 

fronty said:

I know there are people I can talk to about this but before I open that can of worms I just wanted to describe my situation and ask if anyone thinks I am suitably outside IR35 in case HMRC ever came knocking...

1. I operate a Ltd company that has been in existence for 1 year now, during that time I have invoiced about £150K in professional services fees.
2. I provide consultancy services for a US based company, my invoices are addressed to the company's US office in New Jersey, and I invoice monthly in US dollars, I hedge the currency fluctuations and they pay direct into my UK business bank account (Monzo) which converts to GBP at the prevailing rate.
3. My US customer has no other staff located in the UK, I am their sole representative. They have no UK bank account and have not registered with HMRC - they have registered a UK Ltd company with companies house but it is dormant, all my business is with the US entity, they have customers globally but I provide my services to the US entity. They deemed it simply too much hassle to get a UK account set up and satisfy all the appropriate bureaucracy simply to support one person. 
4. Because my client is located in the US, the B2B place of supply rules mean I am VAT exempt - because my VAT qualifying turnover is below the threshold (effectively £0) I have not registered for VAT and don't file VAT returns
5. I have no signed contract, we agreed my rate verbally. I work from my home office but there is nothing to say I can't work wherever I want (even abroad if I wanted to).
6. I control my own time, and can take time off whenever I like and work whatever hours I deem necessary.
7. My client could terminate me without notice, I could also terminate them without notice.
8. Because there is no contract, there are no substitution clauses, however I do know people who work in my industry I could potentially contract to replace me, subject to their availability.
9. Without a contract I know I am fully aware I am working at risk, but my relationship with my customer is based on mutual trust (having known them for many years prior to my engagement). If I was terminated then I would just get another job (either PAYE or continue contracting).
10. I pay myself a salary of £12570, and draw dividends to top up to something more reasonable
11. To cover off lost benefits, my Ltd company pays into my SIPP (salary sacrifice) and has taken out a group policy with BUPA to provide medical cover for my family
12. I currently don't have any PI insurance (or any insurance for that matter) as I'm not providing services to 3rd parties

When I started this engagement (12 months ago now) my accountant assessed me as being outside IR35 but it's always been in the back of my mind.

Are there any red flags you think I need to address to stay outside IR35?

Thanks for reading.

Not sure why you are paying for BUPA via the company? Its likely to be more expensive and not tax efficient assuming you are remembering to declare the BIK 

How are you not providing services? Your client has paid you £150k and you've not done any work for them? What are the monies for if not services?

The main red flag is the lack of a contract, unless you can evidence that you have provided a substitue in the past the only evidence is the contract that states you can. Its worth looking at the questions in any IR35 determination tool which will indicate the sort of things that HMRC are considering and therefore you need either evidence of that your business practice matches it or a contract stating that it will if its not something thats actually happened.  

Grumpy_chap

DullGreyGuy said:

How are you not providing services? Your client has paid you £150k and you've not done any work for them? What are the monies for if not services?

I read that the OP was providing services but (because of "place of supply rules") the services do not contribute to turnover in the context of assessing need to register for VAT.

I am not familiar with "place of supply rules" but my quick internet search did suggest that the OP may well be exempt from the need to register for VAT despite being above the normal threshold in pure turnover terms.  The "place of supply rules" are more complex than I can spend the time to understand.  The OP mentioned that they have an Accountant so I would expect the OP to have asked and the Accountant to have provided accurate advice.

Marcon

You have a contract, but unfortunately only a verbal one. Good luck if it ever comes to a dispute (or better idea: maybe get a contract in place? Looks a look more professional than crossed fingers!).

DullGreyGuy

Grumpy_chap said:

DullGreyGuy said:

How are you not providing services? Your client has paid you £150k and you've not done any work for them? What are the monies for if not services?

I read that the OP was providing services but (because of "place of supply rules") the services do not contribute to turnover in the context of assessing need to register for VAT.

I am not familiar with "place of supply rules" but my quick internet search did suggest that the OP may well be exempt from the need to register for VAT despite being above the normal threshold in pure turnover terms.  The "place of supply rules" are more complex than I can spend the time to understand.  The OP mentioned that they have an Accountant so I would expect the OP to have asked and the Accountant to have provided accurate advice.

The comment was in relation to point 12 where they said they dont have PI insurance as they dont provide a service. 

My understanding is also that exported services/products, which would be 0% rated for VAT anyway, do not count towards your turnover for assessing if you need to register for VAT. That said, it's a case where voluntary registration would seem appropriate either on the flat rate scheme or so the small amount of VAT paid on supplies etc can be recovered. I will assume that the OP's accountant is correct in the assessment that the supply of services in this setup will be considered export. 

Grumpy_chap

DullGreyGuy said:

The comment was in relation to point 12 where they said they dont have PI insurance as they dont provide a service. 

Ah, on that point we are probably in agreement:

Grumpy_chap said:

It would be wise for your Ltd Co. to have in place basic insurance (professional indemnity, employer's liability, public and products liability) which includes USA geographical location / contracts.

fronty

Thanks for the comments, just to clarify a few things, probably misunderstandings due to the way I worded this, in point 2 I said I provide services to my client, in point 12 I said I didn't provide services to any 3rd parties, by that I meant services to my client's customers. I am considering taking out some form of PI cover anyway, a friend recommended qdos.

My ltd co is paying for BUPA and I'm paying the BIK charge on this because it worked out cheaper than taking out a personal contract with them. It was significantly cheaper to do it though the company, I have no idea why but I used a specialise broker (WTW) who set this all up for me.

Point taken about the lack of a contract, I will discuss this with my client and see if this is something we can resolve.

MeteredOut

Two comments from me:

- Get proper advice on IR35. This could be very costly if HMRC come looking and you've got it wrong. Based on what you've written, you sound like a disguised employee.
- Get PI insurance - without a contract, if the US company were to sue you, what's to say your Ltd company protection will be available to you? It also adds a little piece of evidence that you're a supplier, not an employee should HMRC come calling (though that alone would not be a decisive point)

On the first point, no-one here will be able to tell you what HMRC would do. You've not provided enough detail and it is your actual day-to-day working practices (not what you could do via the lack of a contract) that they'd take into account.

- Have you ever substituted?
- Do you take holidays at the drop of a hat?
- Are there periods of time where the client has said "I don't need you for the next 3 weeks"?
- Do you work different hours each day, as and when you want or do you work x hours per week?
- Does your work align to your client working hours?

And can you evidence all of these?

DullGreyGuy

fronty said:

Thanks for the comments, just to clarify a few things, probably misunderstandings due to the way I worded this, in point 2 I said I provide services to my client, in point 12 I said I didn't provide services to any 3rd parties, by that I meant services to my client's customers. I am considering taking out some form of PI cover anyway, a friend recommended qdos.

My ltd co is paying for BUPA and I'm paying the BIK charge on this because it worked out cheaper than taking out a personal contract with them. It was significantly cheaper to do it though the company, I have no idea why but I used a specialise broker (WTW) who set this all up for me.

Point taken about the lack of a contract, I will discuss this with my client and see if this is something we can resolve.

PI is there to protect you if your client states you gave them bad advice, if there is a downstream clients it would normally be that they sue your client and they counter sue you. 

Surprised on the BUPA front, it was vastly more expensive going via the LTD and that is before considering BIK etc