IR35 in reality

[MonkeysUncle]

Actually many public sector contractors are now working outside of IR35 as a result of slightly contrived arrangements between recruitment agencies and public sector organisations for the recruitment agency to act as a consultancy. Public sector organisations clearly decided the new rules were unworkable if they actually wanted to deliver anything!

I worked a gig like this recently.
The recruitment agency worked primarily in the health care sector so IR35 hit them hard. The only option they had was to set up another arm of the company as a consultancy.
They then bid for the work from the NHS Trust (delivery or a project) with an agreement of deliverables, SoW etc.
The agency then recruited contractors (Me) to work for the consultancy working on their clients project.
I wasnt onsite at the Trust apart from meetings, most of the work was done either from home or at the consultancy's office.
For the Trust they get the skills required and project completed as they have outsourced their work to an external company.
The recruitment agency still gets its cut and carries on ticking.
I have seen a lot of these popping scenarios popping up now.

[malvolio]

I worked a gig like this recently.
The recruitment agency worked primarily in the health care sector so IR35 hit them hard. The only option they had was to set up another arm of the company as a consultancy.
They then bid for the work from the NHS Trust (delivery or a project) with an agreement of deliverables, SoW etc.
The agency then recruited contractors (Me) to work for the consultancy working on their clients project.
I wasnt onsite at the Trust apart from meetings, most of the work was done either from home or at the consultancy's office.
For the Trust they get the skills required and project completed as they have outsourced their work to an external company.
The recruitment agency still gets its cut and carries on ticking.
I have seen a lot of these popping scenarios popping up now.

So in 6 months' time or so Hector spots what is clearly a contrived arrangement and a small amount of hell breaks loose since I don't suppose for a moment that they are interested in IR35 as much as they are in maximising the tax take from work done.

This will not end well...

[Hobosapien]

From a contractor's perspective then as long as the 'outside IR35' determination is accepted by an IR35 insurance company then you've mitigated the risk as much as you can if HMRC come sniffing.

At some point you have to take the agency's word on the contract they're offering and there's only so much they will divulge for due diligence, making sure it's all in writing so any issues reside with the agency if a court battle breaks out.

Worse case, put aside the potential 'inside IR35' cost as a medium term investment if HMRC don't follow up within the jurisdiction period.

[TonyF]

From a contractor's perspective then as long as the 'outside IR35' determination is accepted by an IR35 insurance company then you've mitigated the risk as much as you can if HMRC come sniffing.

At some point you have to take the agency's word on the contract they're offering and there's only so much they will divulge for due diligence, making sure it's all in writing so any issues reside with the agency if a court battle breaks out.

Worse case, put aside the potential 'inside IR35' cost as a medium term investment if HMRC don't follow up within the jurisdiction period.

If the work is public sector then from the contractor's perspective they are theoretically in the clear whatever happens - the client makes the decision whether they are in or out of IR35 and the agency takes the hit if they are wrong.

As long as there is nothing that prevents the agency from claiming back that money from the contractor, all is good as far as they are concerned - no insurance required.

[malvolio]

I...snip... - no insurance required.

Unless you need to take it to appeal to ensure that you don't get stiffed with someone else's debt; plenty of contracts contain a "Supplier agrees to indemnify..." clause for example.

And yes I know nobody with any brains would sign such a thing, except they do, with monotonous regularity. The need for such insurance may be reduced, but the risks of having to fund a 5-figure court case plus appeals is still very real. And, of course, it may not be covered by IR35 insurance, since it is not IR35 that is in dispute.

[swamp]

I'm just not comfortable accepting such a position if the agency is trying to mislead the PS client and/or HMRC by operating in a way that would otherwise not allow the client to declare the contact outside IR35.

It's one of those things that regardless of paperwork the actual working practices may mean the approach comes undone if HMRC investigate, and as yet there's been no court case to prove the client would be liable under the new PS IR35 rules. If the agency became liable they would no doubt try to pass the responsibility for tax due on to the contractor somehow.

It just seems a murky thing that HMRC will not see in a good light unless absolutely nailed down as above board in HMRC's eyes. Not sure how that could be proven up front without legal interpretation via a court.

HMRC do this themselves.

[Hobosapien]

HMRC do this themselves.

Aye, a law unto themselves. So they can close exploited loopholes retrospectively and charge a penalty for the now overdue taxes.

So it's not enough you are adhering to the current rules, you also have to adhere to the spirit of the rules.

[TonyF]

Aye, a law unto themselves. So they can close exploited loopholes retrospectively and charge a penalty for the now overdue taxes.

So it's not enough you are adhering to the current rules, you also have to adhere to the spirit of the rules.

And what the spirit of the rule might be when they look back at some indeterminate point in the future...

[ndl]

What I usually do is after working for some time for the client I tell them that I have to take care of some personal matters for a week or so and I don't really want the work to stop so I will subcontract someone I trust. This usually goes well. I get a contract signed with another person who does the work and I pay that person from my company's bank account. I believe this is a strong indication of being outside IR35.

Another thing I've noticed is that a lot of contracts do not have a clause for mutuality of obligation or if they do it usually begins with "Upon the termination or expiry of this Agreement, Employment Business will not be obliged to offer [blah blah blah]" which is not ideal, so I always try to get it changed to:
"The Client is not obliged to offer an Assignment to the Contractor and the Contractor is not obliged to accept any Assignment offered by the Client. There is no mutuality of obligation during or between Assignments. This Agreement is not an exclusive arrangement and nothing in it shall prevent the Contractor from providing services to an unrelated third party during an Assignment as long as it does so without detriment to its Services."

[northernladuk]

And have you had those changes reviewed by a IR35 contract specialist?