Very worrying - the expenses thing

[SarahL2012]

I'm doing some consultancy work for a client at the moment. Wrote a report with 10 areas for them to consider. Told me they wanted me to focus on numbers 1-4 and 10. So instantly that's "direction". A week in they changed their mind and decided number 2 was critical - more "direction". Last week they chased me up on how the analysis was coming along - "supervision"?

Under IR35 case law this project puts me firmly outside IR35, but if I read the consultation document on expenses I'm concerned I could be in scope. I don't think the intention was ever to bring 1 man band consultants into scope, but that isn't how the document is laid out.

[pr1]

I don't think the intention was ever to bring 1 man band consultants into scope, but that isn't how the document is laid out.

don't be naive, it's literally the first example in the guidance

[jamesbrown]

Ok, last try. The issue is that ONLY S or D or C is going to be considered. To quote MacKenna J:

"An obligation to do work subject to the other party’s control is a necessary though not always a sufficient, condition of a contract of service. If the provisions of the contract as a whole are inconsistent with its being a contract of service, it will be some other kind of contract, and the person doing the work will not be a servant. The judge’s task is to classify the contract ……. He may, in performing it, take into account other matters besides control." i.e. There should be considerations other than SDC when determining employment status.

Also from Morren v Swinton Lord Chief Justice Parker said

“Clearly superintendence and control cannot be the decisive test when one is dealing with a professional man or a man of some particular skill and experience. Instances of that have been given in the form of a master of a ship, an engine driver or a professional architect, or as in this case, a consulting engineer. In such cases there can be no question of the employer telling him how to do work; therefore the absence of control and direction in that sense can be of little, if any, use as a test”

Existing case law cannot be relied upon if elements other than SDC have been used, alongside SDC, to determine status in those cases

You're using some of the same quotes I've given you, and you don't need to underline them

Absolutely, the case law that applies to SDC will continue to apply to SDC. Your argument above is that SDC will be determined in a different way ("Under what circumstances could someone work with absolutely no possibility whatsoever of supervision or direction or control?"). It won't be. However, to state the obvious, SDC now becomes the only factor, which is a tightening on the current situation where RoS and MoO could be equally determinative. So let's not conflate the general and the specific here. I am merely pushing back on some of the things you are saying, not all of them. There is an obvious attempt at tightening, but it won't be much of a simplification, and the main danger is not in the definition of SDC (even though you and others seem to place an enormous weight, completely unfounded in my view, on the "OR" in SDC), rather it is the proposal for administering it. The main concern is that a client could be making the determination upfront. Unfortunately, it sounds as though the discussion is more of a consultation, and they will be pursuing that new approach to administration without a compelling alternative.

[jamesbrown]

Oh, and for those that are interested, see Table C.5 on page 63 of the first OTS report about why they viewed this new approach to administration (clients determining status) as unworkable. With the new requirements for expenses, you can see how some of those main criticisms are starting to fall away

[Contreras]

Absolutely, the case law that applies to SDC will continue to apply to SDC. Your argument above is that SDC will be determined in a different way ("Under what circumstances could someone work with absolutely no possibility whatsoever of supervision or direction or control?"). It won't be. However, to state the obvious, SDC now becomes the only factor, which is a tightening on the current situation where RoS and MoO could be equally determinative. So let's not conflate the general and the specific here. I am merely pushing back on some of the things you are saying, not all of them. There is an obvious attempt at tightening, but it won't be much of a simplification, and the main danger is not in the definition of SDC (even though you and others seem to place an enormous weight, completely unfounded in my view, on the "OR" in SDC), rather it is the proposal for administering it. The main concern is that a client could be making the determination upfront. Unfortunately, it sounds as though the discussion is more of a consultation, and they will be pursuing that new approach to administration without a compelling alternative.

Good points well made in this thread and it's important that those purporting to represent 'us' understand them. At the moment the discussion seems focussed on the immediate financial impact rather than how it may play out in the longer term.

Loss of expenses won't affect me. But I resent the proposed changes because they are wrong in principle. It also ratchets up the idea that contractors need a separate tax regime and, ultimately, this will be cemented in a new entity (call it FLC, whatever) to "simplify" matters.

The issue is how the SDC rules will be administered (sharing jb's concern bolded in the quote above). HMRC have learned very well the problem with IR35 is their [lack of] resources to pursue it. If clients are cajoled into declaring SDC then the actual definition will be moot. Then, not only would it be loss of expenses but IR35 position would be significantly weakened.

tldr; - In other words, it's the thin end of the wedge.

[LisaContractorUmbrella]

You're using some of the same quotes I've given you, and you don't need to underline them

Absolutely, the case law that applies to SDC will continue to apply to SDC. Your argument above is that SDC will be determined in a different way ("Under what circumstances could someone work with absolutely no possibility whatsoever of supervision or direction or control?"). It won't be. However, to state the obvious, SDC now becomes the only factor, which is a tightening on the current situation where RoS and MoO could be equally determinative. So let's not conflate the general and the specific here. I am merely pushing back on some of the things you are saying, not all of them. There is an obvious attempt at tightening, but it won't be much of a simplification, and the main danger is not in the definition of SDC (even though you and others seem to place an enormous weight, completely unfounded in my view, on the "OR" in SDC), rather it is the proposal for administering it. The main concern is that a client could be making the determination upfront. Unfortunately, it sounds as though the discussion is more of a consultation, and they will be pursuing that new approach to administration without a compelling alternative.

This is exactly my point

The OR and the 'right of' are significant not necessarily from a legal standpoint but from a commercial perspective - how many clients are likely to confirm in writing that they relinquish the right to supervise, direct or control?

[Contreras]

how many clients are likely to confirm in writing that they relinquish the right to supervise, direct or control?

about the same number that are likely to confirm in writing that they relinquish the right to supervise, direct and control.

That is, roughly zero.

Assuming penalties for misreporting, the risk averse approach is to declare SDC whatever the definition.

It could in theory lead to rate increases to compensate, but IMHO clients won't care about that (even if it's considered) the thing that matters is the ability to bin someone easily.

[jamesbrown]

This is exactly my point

The OR and the 'right of' are significant not necessarily from a legal standpoint but from a commercial perspective - how many clients are likely to confirm in writing that they relinquish the right to supervise, direct or control?

We seem to be talking past each other again, because I'm pretty sure we agree on the real risk. Clients aren't going to be concerned with the details of how SDC is defined and how the courts interpret it. They will make a blanket determination based on risk and, unfortunately, it will be short-term risk to their bottom line, not long-term risk to the flexible workforce. If we both agree on that, we can stop arguing about the "right" or what the Venn diagram of SDC looks like or how the courts might interpret SDC in future (you seem to think it has changed, I don't think it has changed, but let's agree to differ).

My point is that we're in danger of missing the wood for the trees. The expenses issue is important, but it's not the most important issue. The focus needs to be squarely on offering a compelling alternative to clients judging IR35 status (defined in any way you choose), but I'm afraid we may be spinning our wheels in that respect, as Contreras points out. This approach of clients pre-judging status was rejected originally. It was again rejected by OTS recently. Based on what I've read on the IPSE forum, the mood music is that a compelling alternative will be needed.

[LisaContractorUmbrella]

We seem to be talking past each other again, because I'm pretty sure we agree on the real risk. Clients aren't going to be concerned with the details of how SDC is defined and how the courts interpret it. They will make a blanket determination based on risk and, unfortunately, it will be short-term risk to their bottom line, not long-term risk to the flexible workforce. If we both agree on that, we can stop arguing about the "right" or what the Venn diagram of SDC looks like or how the courts might interpret SDC in future (you seem to think it has changed, I don't think it has changed, but let's agree to differ).

My point is that we're in danger of missing the wood for the trees. The expenses issue is important, but it's not the most important issue. The focus needs to be squarely on offering a compelling alternative to clients judging IR35 status (defined in any way you choose), but I'm afraid we may be spinning our wheels in that respect, as Contreras points out. This approach of clients pre-judging status was rejected originally. It was again rejected by OTS recently. Based on what I've read on the IPSE forum, the mood music is that a compelling alternative will be needed.

We may now then have an accord

I'm not sure there can be an alternative - HMRC/HMG feel that some contractors are not in business on their own account but are disguised employees - any test is always going to be based on the ever shifting sands of employment law which means it's going to be hard to define and impossible to police.

[mudskipper]

We may now then have an accord

I'm not sure there can be an alternative - HMRC/HMG feel that some contractors are not in business on their own account but are disguised employees - any test is always going to be based on the ever shifting sands of employment law which means it's going to be hard to define and impossible to police.

I agree about the dangers of an alternative - an alternative approach to adminstration (e.g BETs done properly) is one thing, an alternative to IR35 (FLC) is unlikely to be good news IMO (other opinions are available!) and I fear creates a danger of implicitly agreeing that contractors should be treated differently.