Yet more IR35

[pauljh]

Hello All,
Still not knowing 100% if I'm inside or outside IR35 (some "facts" say I'm out while one other fact says I'm not) and researching test cases on substitution, control, etc are non-conclusive (i.e. if someone did substitute but they still got caught by IR35), blah blah.

So I was wondering how did IR35 get past into law?, surely with such "finger in the air" guess work as to if your in or out it can't be legal?, is there a way to get IR35 removed as illegal or immoral? As the only conclusion I have is that ALL one man companies could be said as inside IR35 depending on which "rules" want to be used or not.

Also if IR35 is to show that one man companies are actually permy's why isn't the opposite true?, are there cases where a permy proved he was outside IR35 and so was entitled to be being paid more? - Logic dictates you should have both sides, surely?

Regards

Mr outside IR35 (if IR is reading this)

[malvolio]

It got passed into law becuase there wasn't anyone around to stop it. There is now, of course, and they've beefed up the consultation process so it actually works. There shouldn't be another IR35 (although if we keep NL much longer they will no doubt have a damned goo go...)

The other thing is not to confuse "IR35-caught" with "employed". While the IR35 tests are based around employement tests, they are not tests of employment status. This is another stupid anomaly, of course, but one we're likely to be stuck with for a while to come.

The real issue is that the law is binary - you're an employer or an employee - whereas reality is trinary - you're an employer, an employee or a freelancer. This is why PCG are trying to get freelancing offically (if not legally - at least not yet!) recognised as a valid working model. Scrap S44-7 IETPA (S134c as was) and work out how to stop contractors not paying their correct taxes and we could all go back to being self-employed Schedule D workers. Ho hum...

Looking at it another way, you can use the employement test of Control - the only one that really matters - as the separator. If you, Mr Client, exercise contractual D&C over me, then you are liable for paying my taxes. If you don't, I am. Simples...

[weemster]

It got passed into law becuase there wasn't anyone around to stop it. There is now, of course, and they've beefed up the consultation process so it actually works. There shouldn't be another IR35 (although if we keep NL much longer they will no doubt have a damned goo go...)

The other thing is not to confuse "IR35-caught" with "employed". While the IR35 tests are based around employement tests, they are not tests of employment status. This is another stupid anomaly, of course, but one we're likely to be stuck with for a while to come.

The real issue is that the law is binary - you're an employer or an employee - whereas reality is trinary - you're an employer, an employee or a freelancer. This is why PCG are trying to get freelancing offically (if not legally - at least not yet!) recognised as a valid working model. Scrap S44-7 IETPA (S134c as was) and work out how to stop contractors not paying their correct taxes and we could all go back to being self-employed Schedule D workers. Ho hum...

Looking at it another way, you can use the employement test of Control - the only one that really matters - as the separator. If you, Mr Client, exercise contractual D&C over me, then you are liable for paying my taxes. If you don't, I am. Simples...

[centurian]

are there cases where a permy proved he was outside IR35 and so was entitled to be being paid more?

Being outside IR35 doesn't mean you get paid more.

It simply means that if you also operate a Ltd Company, then you can exploit the fact that dividends are not subject to national insurance contributions.

If you're a permie and get paid PAYE, then there is no opportunity to avoid NI, so there is no saving to be made - even though your contract and working practices might sit outside IR35

I know of someone that runs his own company and employs people and is as far outside IR35 as you can get, yet pays himself full PAYE and doesn't take dividends.

[BolshieBastard]

The only people able to definitively determine your iR35 status is the HMRC Special Commissioner.

Fact!

[NotAllThere]

The only people able to definitively determine your iR35 status is the HMRC Special Commissioner.

Fact!

Judge, surely.

[Not So Wise]

So I was wondering how did IR35 get past into law?,

Basically it was two factors that brought about IR35, the public one was abuses by companies (especially financial sector) where someone was a permie on the Friday and back doing the same job on the Monday as a contractor. People were doing this mainly for tax reasons but in some cases people were actually being forced by employers to do this so company was not obligated to provide employee rights (and interestingly enough seeing the latter starting to happen again recently)

But it was the second, hidden reason, was what most likely actually got the politicos moving, intense lobbying by the major consultancies (mainly American) who could not really compete against contractors due to their overheads (In America consultancies pretty much rule the market and contractors are the minority and usually work for the consultancies)

It's initial drafting though would have caught out many other groups like Lawyers and Doctors, who have their own lobbing groups, so they and other groups (including PCG which was formed initially just for IR35) fought against it separately for their individual benefit/protection, which basically left the whole thing so vague and full of holes it is little more than one big scare tactic the tax man uses, which creates huge financial uncertainty for little or no benefit to the economy or tax revenues

Judge, surely.

Correct, Hector will generally find most IT contractors inside IR35, Judges generally don't. Judge trumps Hector

[PhilAtBFCA]

pauljh

You may well be able to review your status yourself as far as IR35 is concerned. I updated our guidance on how to do this recently here If you struggle at all, then I would think of getting your contract and working practices looked at by a professional.

It is also vital that when you review your status you keep the required evidence, ( see the article again on that one )

BolshieBastard

You can determine your own status, its actually the responsibility of the company director to do this. its a company liability, although that can be made personal, see here if you need to know about reg 72.

If HMRc disagree, and they may well do, they can challenge your opinion.

If you disagree with the challenge then it goes to First tier Tribunal, and that will be an indepnedent judge that will then decide based on established case law.

It is not up to HMRC to decide at all ! They just have their opinion. As a Directord of a Ltd Company you have as much opinion as they do on the subject and have the same case law to work with !

With the current employment law cases arriving re holiday pays and employment rights for temporary and agency workers, clients have much more of an incentive to agree real terms that are outside IR35, so if you know your stuff on IR35, know how to agree terms and conditions that are outside, you can do it ! And be compliant !

Phil