2 or 3 contractors working under same firm

[PAG]

Following may not be possible practically but could be possible theoratically to be OUTSIDE IR35?

What if a friend becomes a director of the comapany and he employes me as a full time staff at £10K PA.

As a director he (friend) doesn't do any other work.

when the company makes the profit at the end of the year director declares himself dividend.

once the dividend is in the a/c he is willing to share with you.

this way the director never worked as FT employee so no IR35 ??

[ASB]

"once the dividend is in the a/c he is willing to share with you."

At the best that completely defeats the scheme for a number of reasons which should be fairly self evident. At worst it gets you both locked up.

Of course the scheme would be entirely succesful until challenged.

[THEPUMA]

A couple of points re substitution:-

Firstly, the actual use of a substitute is not necessarily "game, set and match". The unfettered right to use a substitute is game, set and match but theoretically you could have a fettered right to use a substitute, actually use one and still be caught. If this were not the case, it would be dead easy for any contractor to have a fettered right (which many do), have a substitute on site for a day, say, and not be caught by IR35. If you had a good enough relationship with your client, I am sure some would be willing to allow this.

Secondly, someone said that the courts were hazy on the issue of substitution. This is incorrect. The precedent is very clear on the matter. LJ Peter Gibson, in his judgement in Express & Echo Publications v Tanton, said "In these circumstances, it is, in my judgment, established on the authorities that where, as here, a person who works for another is not required to perform his services personally, then as a matter of law the relationship between the worker and the person for whom he works is not that of employee and employer.".

This is not an ambiguous statement. The unfettered right of substitution is absolutely inconsistent with an employment relationship.

[ASB]

Firstly, the actual use of a substitute is not necessarily "game, set and match".

An interesting argument. My view is that the notional contract is based on the working practices as well as the written contracts. Actual substitution has taken place. There is therefore a right (fettered or otherwise) of substitution. In any event this demonstates that personal service is not required - thus it cannot be an employment relationship.

It would be interesting to see the IR mount a challenge where substitution has occured, it seems to me it would have to get beyond the high court in order to set new precedent if the victim was unwilling to concede.

Obviously your view may prevail rather than mine, but only time will tell.

[THEPUMA]

I think in practice HMRC would take on an easier target but in theory I believe it could be challenged.

[Robwg]

The client needn't even know that you've hired a temp to do some basic work that doesn't need a high level of knowledge or understandng of the whole project.

How on earth is this substitution if you don't even tell the client and just have some temp at your home (sorry 'offices') doing....donkey work as you put it? If I was a tax man looking for my yearly bonus I would say you were paying a temp and using him as a form of insurance to get yourself out of IR35. Sounds very suspect to me - more like Tax avoidance if anything.

Still - whatever floats your boat.

[Robwg]

Accenture work under a different contract terms to you and I. Some clients (like my last) use them precisely because they DO have a pool of people who can replace a leaver. The terms also allow to send back any unsuitable replacement at no cost.

Plus of course - Accenture don't tend to take their work off of jobserve :-)

[Robwg]

How can it be tax avoidance when I am actually paying someone?

Because the revenue might look at what the person is doing, see that he is doing work that you could perhaps do yourself, see that you were presumably paying less than you would be if caught (if you aren't paying him less, then you might as well get caught by IR35 - no??), and rightfully decide that the only reason you are employing this person is to get you out of paying the required amount of tax.

Or - are you saying that to get out of IR35 - all any of us has to do is employee a temp for week from an agency (for about 3 or 4 hundred quid - which is far less than we are liable for if caught) and get them to do some sort of spurious task like data inputting and not put them anywhere near a client site?

If so - good plan. I like it.