Determining working practices (IR35)

[Wombat14]

I'm possibly going to be starting a new contract in the new year, via my limited company, as an IT project manager. I'll be managing a series of projects both concurrently and consecutively, initially for three months and possibly longer (if an extension is offered and accepted).

The question of whether or not I'll be inside IR35 is difficult for me to answer with confidence. I'll get the contract reviewed by someone like Qdos, but I'm aware that this is largely worthless without a review of working practices. Some of the working practices are currently unclear - for instance, whether I'm expected to ask for time off (rather than declare it), flexibility over working hours, use of staff canteen, etc. - and clearly the "real" practices may not be in step with the contract.

What's the standard approach here? Should I have raised this stuff in the interview? That seems a bit risky, as I suspect that in reality most interviewers won't be sufficiently familiar with IR35 to understand the problem and would assume that I'm going to be high maintenance. Or I could get the contract reviewed and then do the working practices questionnaire a few days into the contract, but if the answer is "sorry, you're inside IR35" it's a bit late to make major changes. It all seems a bit vague and messy to me: I would guess that the right answer is to establish fully the working practices before accepting the contract, but it's not clear to me how best to going about doing so when it doesn't appear to be a conversation that employers are accustomed to having.

On a related note, my "research" has given me the impression that the IT contractors I've worked with are in an IR35 grey area at best - payment is typically by the day rather than by the deliverable; there is little real financial risk to the contractor; work is generally assigned and not optional (beyond walking away from the contract); there is often only limited flexibility in working hours and location, and so on. I may be overly pessimistic here, and perhaps my experience of IT contracts and contractors is actually not typical at all, but I do wonder how many of us would be in trouble if HMRC were able to investigate everyone. Are we basically relying on safety in numbers, or have some of you nailed the art of negotiating compliant working practices as well as compliant contracts, or does the "typical" IT gig contain enough wiggle room in its working practices (lack of MOO, etc) that an organisation like PCG or Bauer & Cottrell can present a robust defence?

I didn't mean this to be an essay, sorry. My reading has thrown up a lot of stuff about what a contractor's working practices should and shouldn't look like, but not much about how this can be made to work in real life for IT people. Any thoughts, advice and so on would be very welcome.

[jamesbrown]

From the way this is written, I'd guess that you're currently a permie, working with contractors, and looking to get into contracting; is that right? You've done some reading, which is a good start (you'd be surprised at how few do). You're right that the working practices are paramount, and they should reflect what's written in the contract.

In terms of the uncertainty, you'll need to become comfortable with this, as IR35 is intentionally unclear; it's built around case law. You mitigate against this by ensuring that your contracts and working practices (insofar as they can be) are properly reviewed (which may include using a template contract), and that you have proper legal representation in the unlikely event that you're investigated. If you do both of these things, the numbers speak for themselves; the risk is absolutely minimal. And don't let the tail wag the dog; there are other, equally important, legal considerations when agreeing a contract.

In terms of the specifics of the legislation, try not to over-complicate things. There are three pillars, of which you need to demonstrate at least one through your working practices (lack of MoO, RoS, and lack of D&C). Retain evidence of each of these areas during your contracts, because you won't need it for several years (if at all), and it's always more difficult to collect evidence retrospectively. Also, providing you have the mindset of a small business, you don't need to over-think the details. Consider getting a Confirmation of Arrangements in place. Some argue that this has limited value, and may even be counterproductive (if it contradicts the contract). Personally, I think they are worthwhile, as they fill in some of the colour of the arrangement.

In terms of raising things during interview: no, why would your client care about IR35? It is really none of their concern. Of course, if you expect flexible working practices, then you should discuss this, but this isn't primarily about IR35, it's about the working practices you expect.

[Wombat14]

Thanks for your reply, it's very much appreciated.

You're half right about my circumstances: I've dabbled in contracting before but realised after the fact that I hadn't done my due diligence with regard to IR35, so I'm planning to do it properly this time.

Could you expand a bit on your comments about discussing working practices? Notwithstanding your excellent point about IR35 being inherently uncertain, I think the root of my dilemma is:

1) I should get a professional to review the real-world working practices before the start of the contract; but
2) I won't know the real-world working practices until I've been there at least a short time and discussed them with the client.

It's not a problem for this particular contract because it's got excellent CV value and if appropriate I will declare myself to be inside IR35. In general, though, I'm not sure whether the advised approach is to clarify the client's expectations on MoO, RoS and D&C before the contract starts; or to clarify during the contract and attempt to negotiate with the client (or leave, or live with being inside IR35, or gamble on not being drawn from HMRC's hat) if the legal opinion is unfavourable.

I suspect I'm either missing something obvious or attempting to square a circle, but any guidance on how people approach this stuff responsibly would be very helpful. I've asked a few contractor colleagues over the last year and the most popular approach is "ignore it", followed by wheezes like erecting a series of phoenix companies and other circumvention tactics of dubious benefit.

Anyway, happy Christmas and a lovely new year to you all!

[jamesbrown]

Could you expand a bit on your comments about discussing working practices? Notwithstanding your excellent point about IR35 being inherently uncertain, I think the root of my dilemma is:

1) I should get a professional to review the real-world working practices before the start of the contract; but
2) I won't know the real-world working practices until I've been there at least a short time and discussed them with the client.

The contract represents the working practices (or it should do); if, in practice, something differs materially from what's stated in the contract, it's a material breach of contract. For example, you should have a defined project (ideally, with defined deliverables). It would not then be appropriate for the client to move you around to work on other projects or deliverables without an agreed change. If the contract has a RoS, you expect that RoS to be honoured. Providing you have the contract reviewed, and you have appropriate professional representation from the very beginning (from the point of initial contact with HMRC), the statistics speak for themselves.

Thus, I think what you're asking is: what should you do if the working practices ultimately differ from what's stated in the contract? Well, at that point, there has been a material breach of contract, and you then have a choice about whether you continue with that contract or find something else. If you're working with employees of your client who aren't fully aware of the B2B relationship stated in your contract (whether direct or with the agency), feel free to remind them, gently . However, I wouldn't view this as an IR35 issue, primarily, but a contractual issue (the client certainly won't care about IR35, but they should care about honouring what's stated in your contract and, if they don't, you always have a choice).

Happy Christmas to you too