Need advice on IR35

[humucagir]

Thanks everyone

[Fred Bloggs]

Does the US company you've contracted with have any presence in the UK at all? That's a very important question.

[malvolio]

Hey, hope you're enjoying you weekend. Throwaway account for obvious reason.

So, I've been quite stupid with my understanding of IR35 and started contracting for a US based silicon valley startup (thus SW dev).
The contract didn't have an end date, so I did thought it would be no more than a year but due to various regulatory delays the project I've been working on is still ongoing. My contract is direct between my LTD and my client, thus no agents etc.

What I have so far in it that would indicate Outside IR35 (as per my understanding)

• RoS. It looks like an unfettered substitution, provided that the substitute has the necessary skills and subject to a standard background screening. I'd have to pay the substitute and be liable if they screw up.
• D&C. I work whenever and wherever I want, don't have a timesheet for hours, pretty much super flexible. I don't even have standups or other agile stuff, occasional meetings to sync on the project. The works is also not assigned to me, I'm just working on a project, given the product requirements, I create the tasks, put them in the backlog, choose how to implement etc.
• MOO. This one is hard since I don't understand it (for me, any contract is by default MOO since that's well, a contract). I specifically negotiated for a MOO clause in the contract and I do have one, which states that "the client is not required to provide work and I'm not required to accept it + I'm liable to fix defects in my own time". But it's kind of a stretch for SW developers. I do stay at night fixing bugs, but sometimes I'm fixing bugs during the day too you know...

What I have that would point towards inside:

• Fixed salary (about $150k annualy). So I get paid monthly a fixed amount. I did try to negotiate hourly/daily, but client just said they don't do it (they don't want to track timesheets and it's easier to budget). This kind of implies that I'm paid if I take days off. However never took more than a week not to compromise the project.
• Performance based bonus. Depending how well I'm doing, I could get a bonus ( and did get once, about 10%).
• Stock options (NSOs) which are directed towards me individually. I did try to negotiate either payment or stock options granted to my LTD, but unfortunately that's not legally possible in the US. I found however this article from QDOS from 2014 that says it should be fine.

Now, that was my understanding that according to the letter of the law, since if RoS is at least arguable if not exercised, it's hard to argue D&C. So I've been operating Outside IR35. But, unfortunately, although I genuinely believe I'm outside, I'm a very paranoid person, so I went recently and did a contract review from a firm I found online.
Out of all 3 (RoS, D&C, MOO) they said everything is covered, but hesitated to make me Outside IR35 because of the stock options. So basically I have a determination that says that it failed. Which now puts me in a position that I can't sleep at night and my mental health is deteriorating and I don't know what to do.
So I'm looking for advice. Should I just call HMRC to make sure it's covered and pay tax if they don't agree? Or I'm just overreacting?

So far I was thinking about:
* Call HMRC, let them do the contract review.
* Just go and find another client and forget or close the company and go perm (unfortunately my mom is ill and I'm very short on finances at the moment).
* Try to exercise my RoS? (It's in the contract, so why not?). By my understanding if I do that then I'm safe?
* Gather some kind of evidence to defend my status?
...
* Buy a life insurance so I can kill myself and my family can get a payout without losing our house.

Thanks

Sorry to agree with the review but that all screams inside IR35...

Incidentally, a substitute for RoS to work legally is someone who takes over the existing contract, responsible for all deliverables, invoicing and the rest. They are not a temporary cover for you, they become you. All you can argue about is how the income is split. And who gets to keep the Ltd Co...

[humucagir]

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[northernladuk]

[*]MOO. This one is hard since I don't understand it (for me, any contract is by default MOO since that's well, a contract). I specifically negotiated for a MOO clause in the contract and I do have one, which states that "the client is not required to provide work and I'm not required to accept it + I'm liable to fix defects in my own time". But it's kind of a stretch for SW developers. I do stay at night fixing bugs, but sometimes I'm fixing bugs during the day too you know...

It's lack of Mutuality of Obligation you are after. There are, as you say, certiain obligations within a contract i.e. you are paid for the work you do. The bit you are after is there is no obilgation for them to offer you extra work above and beyond what you are contracted do and there is no obligation for you to do it if they offer you it.

So if you finish the work in your contract two months early they the contract ends. There is no giving you extra work until the end of the gig. If they expect to keep you busy until the contract leaves or you expect them to give you more work until the contract ends then that is evidence of MoO.

You don't mention anything about the type of work you'll be doing. If it's bits and pieces here and there, finish one thing, get another then there is MoO and that's bad. If you've got one very clear statement of work where you deliver X and no more then that's lack of. I'm guessing looking at all the other stuff you've said you'll likely have a job description and you just get on with it, which again, is evidence of MoO which is bad. The fact it has no end date as well doesn't sound like a fixed SOW gig with lack of MoO either so unless you've got some killer detail I'm guessing you've got problems in the MoO area as well.

The fixing defects in your own time never happens, you'll fix them as part of your day job which becomes an inside flag. Rather minor though so wouldn't worry about that one.

[jamesbrown]

The main thing you've missed is that the hypothetical contract is viewed in the round and you cannot merely add up a couple of pointers to being outside IR35. If you're on a fixed salary and you have stock options, I don't care what your contract says about D&C, MoO and RoS, it's likely all a sham, and that contract is almost certainly going to be firmly inside IR35. I fully agree with the professional reviewer based on the information you have shared.

At this stage, you have two realistic options. Terminate this relationship and move on (hoping for the best) or consider this contract to be inside IR35, both now and in the past. Naturally, this will be expensive, but it is only getting more expensive as you continue. Having a professional review against you is unfortunate because, essentially, any avoidance from now on is deliberate behaviour, were that information to come to light.

As I've noted here a few times, it is very, very hard to be inside IR35 when your clients are in the US or similar and they impose little or no D&C, but your case is a clear exception. You cannot have a fixed salary and stock options and be considered engaged in the ordinary risk-taking behaviour that signals B2B work.

[jamesbrown]

Buy a life insurance so I can kill myself and my family can get a payout without losing our house.

And I hope you aren't serious about this but, in case you are, you should definitely seek help before you spiral. Your situation really isn't that bad. You've already made the hardest step, which is to acknowledge it.

[humucagir]

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[jamesbrown]

The more I think about it the more it comes to my mind that this is a viable solution
Especially after everything you said.

Even if I exercise RoS that won't help? Then the contract won't be hypothetical right?
I also haven't exercised any options if that helps..

There is no one thing that guarantees you are outside IR35 (whereas there are some things that guarantee you are inside, such as being an office holder at the client company).

The "hypothetical contract" is the legal device used by a tribunal judge to build a picture of the relationship between you personally and your end client. It is "hypothetical" because no such contract exists in reality. The real contract is between your company and the client company.

As I said above, if IR35 were as straightforward as adding up pluses and minuses, it wouldn't he half the problem it is. There is a strong, subjective element to it.

My expectation is that, in your scenario, a judge would "look through" any actual substitution (and, in any case, it is the right, to be not unreasonably fettered, that matters, not whether it is actually exercised). Having a fixed salary points to zero business risk, and having stock options is a strong permie pointer too. It is hard to be definitive, for the reasons I've noted above, but I fully agree with the professional review you received, based on the information you've shared. Unfortunately, it's quite easy to paint a picture in a contract, but there are some things that are more telling than words in a contract and a fixed salary and stock options are two of them (incidentally, it makes no difference whether you exercised these stock options).

[jamesbrown]

Should I buy a IPSE insurance or it won't help in my case? ( Reasonable prospects of success etc. )

IPSE isn't insurance, as such, but I doubt there's a reasonable prospect of success, as you say. You could seek a second opinion from another professional reviewer but, honestly, I think you know the answer already. If you do intend to speak to HMRC, then make sure you have professional advice first.