IR35 investigation less likely?

[gingerjedi]

So will Gordon’s abolition of the 10p rate and increase in corporation tax for small companies mean that they are less likely to investigate people who trade as a ltd outside of IR35? If this is the outcome I am more than happy from a peace of mind point of view.

[swamp]

No. The "intermediaries legislation" still applies to PSCs.

Last rumour I heard, HMRC were regrouping their IR35 teams and using smaller groups of specialists instead of the largely inexperienced local inspectors. Expect fewer cases but more wins for HMRC.

[Denny]

So will Gordon’s abolition of the 10p rate and increase in corporation tax for small companies mean that they are less likely to investigate people who trade as a ltd outside of IR35? If this is the outcome I am more than happy from a peace of mind point of view.

It's not wise to assume this, even if it is most likely that new incorporations arising from the MSC demise are most likely to be targetted for compliance after April. After all, the iR already believe that switching from MSC to PSC is just a tax avoidance measure for those who should be have been paying their full whack in the first place.

My advice is to ensure that your end-to-end negotations with the EBs and clients prior to starting an assignment reflect the realities of your IR35 friendly checked contracts and still take out IR35 insurance to accompany these pro-active measures should you be one of the unlucky ones the Revenue decide to investigate.

Things to do:

Ask the EB if their contracts are IR35 friendly.
Ask the EB to send you their terms before they represent you for assignments. Read through them to at least see if they tally with the big three clauses - no MOO, no client control and full rights of subsitution. If they clearly don't then use another EB to represent you or else ask the EB if they will accept an PGC contract instead. If not, enquire as to whether they will consider revisions. Some EBs won't under any circumstances.
Avoid EBs that definitely don't allow IR35 friendly contracts, PGC contracts or revisions (Computer People, Spring are two, I believe),
Once representation and offer arises, make sure you get the contract you want to sign checked out with B&C or Qdos and negotiate with the EB the terms with the client that that don't stack up for IR35 purposes.
Ensure that the client's e-mails to the EB are forwarded to you for agreement to prove to you that the arrangment is genuinely back-to-back - at least with the hiring manager. This is particularly important if the EB won't show or prove to you that their own EB to client (supply chain contact) is back-to-back with the standard contract they originally issued you with. You need to ensure that any revisions made are also reflected at the client end (at least with the hirer).
Never allow the EB to draw up a Works Schedule page (the bit on front of the small print) that seems to suggest contradictions to the already agreed IR35 terms in the small print. Ideally, you should get both the terms and WS checked out together by Qdos or B&C etc. There should be no reference to your personal name or your hours of work on it (if advised that this contravenes the otherwise good terms wording in the small print).
If in doubt, ask the client to sign or agree a terms of working arrangments document and draw up a full Schedule of Works listing the main work deliverables you are being hired to produce. The WAD should also clarify whether your names goes on the company network, what headed paper you use to carry out your client's work, what administrative conformities you need to abide by (and again, need discussing and agreeing with your advisor for IR35 before the WAD is signed.

If possible, try and negotiate a one month initial contract with renewal (particularly if no notice is in place for you for what would be a longer contract). That way you can fully test out the commercial relationship at little cost if the client decides to treat you more like an employee than a business in practice, despite what it says on paper or on the WAD (providing you with office equipment, aksing about holiday arrangements, giving you access to the staff canteen and gym and so on). Just tell the client or EB that the reason is because it is fair to the client to assess whether you are the right business to carry out this work and that a true consultant needs to scope out the work properly, according to the SOW deliverables to ensure that their services are really a good fit for that client and the timescales appropriate. This is a valid reason for any genuine contractor consultant (rathe than bum on seater). Don't, for goodness sake, tell them the real reason.

You can then walk away or re-assess your commerical relationship with the client with no penalty. Most small businesses would be wise to take on small pieces of work with new clients anyway, so why should it be any different for EB sourced work?

Seems long winded perhaps, but failure to take all of these steps increases your risk of being fully IR investigated rather than just enquired about and quickly deadened with satisfactory evidence provided to some speedy probing questions either by you or your accountant. It also increases your risk of your iR35 insurance not being honoured in the event of an investigation. Instead of paying up in full they may decide to force you to settle for a meagre sum that doesn't begin to reflect the true cost to you of the investigation costs and the tax payable or otherwise if you win or lose.

Far too many contractors think that just signing what the EB says is an IR35 friendly agreement and getting it checked by Qdos or B&C and then taking out insurance is all they need to do.

I disagree and suggest that this doesn't do nearly enough to cover yourself and puts you and your EB at unnecessary risk.

The reason I say this is because the number of overall IR tax compliance investigations for all SMEs have been steadily rising over the past few years, even though the percentages overall are still quite small. These are not all necessarily IR35 investigations but one thing leads to another. At the last count it was about 16% of all SMEs in the south east (and about 8% 3 years ago, according to my memory not my research in front of me), a smaller percentage of rises elsewhere. Not sure what the figures are now though - whether up, down or roughly the same.

[Burdock]

Denny,

That is an excellent post.

I am just completing my second contract. The problem that I see is that most job advertisements for my line of work (programming), and I presume clients, are looking for 'bums on seaters' when hiring.

Surely EB's and clients will quickly lose patience with contractors who dispute or niggle about contracts, and offer the work to someone else?

I guess this comes with the territory. I will definitely try out your advice when looking for my next contract.

Finally, how sympathetic are EB's when you explain to them, 'Can you re-word this and that, show me evidence of back to back contracts etc...as I need to place myself outside IR35'...?

Cheers for your advice!!

[Denny]

Denny,

That is an excellent post.

I am just completing my second contract. The problem that I see is that most job advertisements for my line of work (programming), and I presume clients, are looking for 'bums on seaters' when hiring.

Surely EB's and clients will quickly lose patience with contractors who dispute or niggle about contracts, and offer the work to someone else?

I guess this comes with the territory. I will definitely try out your advice when looking for my next contract.

Finally, how sympathetic are EB's when you explain to them, 'Can you re-word this and that, show me evidence of back to back contracts etc...as I need to place myself outside IR35'...?

Cheers for your advice!!

There is a genuine fear that contractors won't be offered the role if they kick up too much fuss about terms. You really have to make this assessment yourself, depending on your economic situation, the length of the contract, the amount of negotiating power you have and so on. Everyone is different. However, in all fairness, once you have decided terms and started, you should accept that others around you may have a better deal negotiated and should behave professionally and try to negotiate better for next time. Don't behave or bitch like a jealous permie as this is very unfair.

Clearly the more junior your equivalent permie counterpart would be in if the role existed for a permie the more likely you will be caught by IR35 if you are part of a numbers game (loads of people can do your job easily).

However, to shine some light on this gloom. There have been a couple of surprising developments which I would take into account. One is a comment made by Simon at SJD about 'client control' being less important than people think for IR35 purposes. The post is under expert in Shout99 (apparently even being asked to take lunch at a particular time, is not that important).

I think the key to all this is what you do, why you need to be on site in a more controlled and supervised environment. If you clearly are a security risk outside of the client company or you have to see people during office hours or you have to use fixed pieces of equipment to do your job on site, then IR35 compliance is not really a threat. If, as in my case, you may be asked to be on site and controlled for unconvincing reasons that pose no threat to the client, the quality of the deliverables, and simply appear to be a way of supervising hours or conforming to rules that apply to others then there is a problem. Luckily, I am a good negotiator and can convince my clients that my reasons for working flexible hours and at home is actually to their advantage (which they genuinely are) and because I work at fairly senior level (for a permie equivalent role). With the best will in the world, most hiring managers are permies and think like permies, so they will always negotiate terms based on what they consider is your 'status' in the project team and how important you are to them. Of course, this is all wrong, as being in business has nothing to do with being status conscious as we are not interested in promotions or company cars. Hwever, you can't teach a cat to bark.

Motive is more important than request, it appears.

[Burdock]

Thank you again!

And finally, just to be crystal clear, to what extent can you be blatant about being concerned about IE35.. I like the way you can convince a client that some measures are to their own advantage, but when it comes to the crunch, can you ever just admit (to client and EB): "Look, I need to strengthen my hand against IR35".

I doubt my current client would have a clue what IR35 is! He would probably think I was trying to break the law!

[Denny]

Thank you again!

And finally, just to be crystal clear, to what extent can you be blatant about being concerned about IE35.. I like the way you can convince a client that some measures are to their own advantage, but when it comes to the crunch, can you ever just admit (to client and EB): "Look, I need to strengthen my hand against IR35".

I doubt my current client would have a clue what IR35 is! He would probably think I was trying to break the law!

It's not a bad idea if you are dealing with an intelligent hiring manager. Most will suss this out anyway as they are not daft and will always assume some self interested motive in there somewhere. The trick is to sell the advantages to you reap more advantages to them as well. If presented correctly, how can they object?

So how do you present your case to the client?

Don't use it as the first reason you mention because (a) there are more client focused reasons for talking benefits of flexible working to them. (b) the IR35 risk is not important or relevant to them as a payment risk and mentioning this first and the client benefits second makes the latter appear to be convenient add ons to get you only what you want and are more likely to be refused. Also the combo of (a) and (b) leads to a win win situation not a win lose situation for one party at the others' expense.

It doesn't matter so much what you say to the EB. They are always being asked about IR35 friendly contracts and expect this kind of enquiry. However, do make sure you get firm written verification that their contracts are back-to-back with the client (and never accept telephone reassurances) once the offer is on the table.

[Burdock]

Many thanks again, Denny! Very useful tips

[Flubster]

Denny....I think I love you...

[Denny]

A hefty invoice will grace your front door mats any day now.