IR35 defeat costs IT contractor £99,000

[VectraMan]

The case law was established using basic skilled workers who could easily find a qualified sub.

However, in a technical consulting role, even one of generic skills, there is always that little extra skill that you have that the suggested sub does not have.

So anyone other than basic skills workers may as well not bother with ROS?

I've learnt a lot about my client's systems in the last year or so, so realistically nobody (other than someobody else who'd worked for the same client) could be a sub for me.

Which brings up another interesting point: the only way somebody could be a sub for me is if I assigned them small bits of work and took overall control. In other words, my sub would be entirely under my direction and control.

[Denny]

What's annoying is that you're selling a product, which is your skill and knowledge. You can go and personally impress a client, but if you have to say "it might not be me doing the work" you've weakened your sales position. They're now concerned that they might not be getting what they think they're getting.

Like the crazy thing about not taking holiday at the worst time for the client, you're acting against the interests of your business in order to be seen as a business. In other words, acting less like a business to be more like a business in the taxman's eyes.

It sense no make.

I've been saying this for a while now: we're businesses when it suits their convenience and not businesses when it's suits their convenience. Hopefully, one bright and sunny day, some people might actually be able to understand where the recruitment industry comes into this dilemma we're faced with and why they are masterminders of this plan by their very existance in the marketplace and the sales model they operate by.

At the moment, CUK members clearly don't see the link and nor do the PCG. But I live in hope and will continue to keep knocking on doors....

[Denny]

There is no 'defence' to not having an RoS. If it's impractical, you don't have one, end of.

tim

The best way to ascertain whether or not you do have a right of substitution is to examine the complexity of what you do and how quickly you could do a handover if you were ever not there to do it. You should quickly be able to work out whether it is feasible to use a sub or not.

As I said before, the RoS could easily be used as a right to use helpers during overspill. This is a more plausible option for most contractors who are working in complex roles that need a broad understanding of what the job takes to do it properly, which could take some time.

RoS by definition, according to HMRC rules, has to relate to skills based work that can be applied pretty generically and effectively at short notice. A plumber can send in another plumber to replace him/her to fix a pipe (because of their prior training which can be applied to anyones pipes) but a contractor that needs intricate knowledge of the organisation, computer systems and needs to understand other team mates jobs to get their own work done is a different matter so a sub isn't a realistic prospect.

What I don't understand is this: if the RoS is not possible for most IT contractors, according to HMRC, how is it possible for an EB to replace the IT contractor or the client if the contractor leaves? Either it takes a long time or it doesn't to work into the role. Who does the interviewing and hiring is immaterial.

[Spoiler]

If a contract names "MyCo Ltd" to deliver a service to a client, rather than naming the individual, why the need for a RoS clause?

[tim123]

So anyone other than basic skills workers may as well not bother with ROS?

I've learnt a lot about my client's systems in the last year or so, so realistically nobody (other than someobody else who'd worked for the same client) could be a sub for me.

More or less, that's it in a nutshell.

The problem here is the view of many people in the avoiding IR35 camp, that getting a right of substitution is the easiest way to do so.

They are right, unless actually getting that right is hard. But they ignore this problem, stick a clause in the contract that tells you you are covered, and don't bother with the rest. But this shouldn't work, as the only case law about substitution says that it must be a real right.

As you say (and as I've been saying for ages), the most important thing that you take to your client each day, is the accumulated knowledge of his systems that you have gained during the time that you have been there. No client in his right mind is going to let someone who's 12 months up the learning curve substitute themselves with someone who's on day one. And anybody who believes that they will, is a fool.

It might work for a first line windows support numpty, it doesn't work for developer of bespoke system.

Getting RoS is oversold and consequently over emphasised.

tim

[Ruprect]

Anyone tempted to pack it all in and go perm? Is this what the government want?

Out of interest, can anyone break down the figures for 100000 inside IR35 including all tax, NI etc?

[Ardesco]

Roughly

£5000 - No Tax / NI
£28,000 - 22% Tax / 11% NI / 13% Emp NI = 46% - £12,880
£35,142 - 40% tax / 1% NI / 13% Emp NI = 54% - £18,977

Take home £68,142
Tax/NI £31,857

With £1 left in your Company account

I've prolly missed something off and Emp NI contributions are 12.8% not 13% but close enough.

[Ruprect]

Roughly

£5000 - No Tax / NI
£28,000 - 22% Tax / 11% NI / 13% Emp NI = 46% - £12,880
£35,142 - 40% tax / 1% NI / 13% Emp NI = 54% - £18,977

Take home £68,142
Tax/NI £36,857

With £1 left in your Company account

I've prolly missed something off and Emp NI contributions are 12.8% not 13% but close enough.

Where did the £35,142 figure come from? surely once the first £33K are taken care of there is 67K left. Sorry if I'm being basic here.

[Ardesco]

Compared to:

CT £20,000

£5000 - No Tax/NI
£28,000 - No Tax/NI
£37,600 - 25% Tax - £9400

Take Home - £70,600
Tax/CT - £29,400

Really not much difference if you take it all out.

(Which means I have probably made a schoolboy mathmatical error)

[Ardesco]

Where did the £35,142 figure come from? surely once the first £33K are taken care of there is 67K left. Sorry if I'm being basic here.

You have found my schoolboy mathmatical error (There's a reason i let the accountant work this out)

Try

£5000 - No Tax / NI
£28,000 - 22% Tax / 11% NI / 13% Emp NI = 46% - £12,880
£67,000 - 40% tax / 1% NI / 13% Emp NI = 54% - £36,180

Take home £50,940
Tax/NI £49,060

That looks more realistic