Rentacoder/Vworker, tax and IR35

[Happy Hacker]

I'm not sure what basis you pay him on.

Does he send you an invoice of any description? If so I guess you just pay it. The question is whether this places any responsibility on your co in the home country (unlikely, but possible).

However, the email trail may reasonably evidence the contract and payment.

In the absence of any invoice then it is likely to be simply regarded as a net wages payment by HMRC. If the guy is not UK resident (and this seems likely - but it's not impossible) then there is no UK tax or NI due. But you should really fill out the forms, employee him, get a tax code etc. (Of course doing this he will probably just tell you to bog off). There are obviously also potential implications on your company in his home country.

No, there aren't any formal invoices. I just email or IM him and we discuss what I want or if I found any problems with the last bit of work he sent me and then he comes back to me with more code. When he finishes a bit of work I'm happy with I ask him how much he wants to be paid, and then pay him.

If I showed my email/IM correspondance to HMRC do you think I would get in any trouble for not having a more official setup? If I had to jump through all those hoops I doubt I would have used this guy's services and would not be developing this product.

I'm not quite sure what any of this has got to do with IR35. IR35 relates to the contracts between you and your clients, not your suppliers.

Why are you worried about being caught by IR35? It's not relevant at all to the turnover derived from your product sales. It's only relevant to any services you might provide to a client and each one is evaluated on its own merits.

You do want to make sure that it couldn't be construed that you are acting like the freelancers employer but a contract outlining the work required, how much you will be charged for it and proper invoices should be more than sufficient.

How the supplier accounts for their tax in their own country is none of your business.

In the Business Entity Tests (http://www.hmrc.gov.uk/ir35/guidance.pdf which are about HMRC's "risk-based approach to checking customers' compliance with the intermediaries legislation commonly known as 'IR35'") the Assistance test on page 17 asks "Does your business engage any workers who bring in at least 25% of your yearly turnover?".

I think this matter is absolutely relevant.

[Happy Hacker]

Just remember IR35 is on a contract by contract basis. One could be outside, one could be inside even if they are running in parallel. You would score well on the business entity tests having parallel streams of work though so bit less likely to be investigated.

You're right. Interestingly HMRC's Business Entity Tests document (http://www.hmrc.gov.uk/ir35/guidance.pdf) says on page 11:

Second, the business entity tests look at how your business works overall in order to gauge the risk that we will check whether IR35 applies to you. But, for the purposes of calculating PAYE and NIC under IR35, you need to consider each engagement separately.

So IR35 is on a contract by contract basis (like you say), but the Business Entity Tests which they use to determine whether you fall inside or outside IR35 are not!

Interesting.

[northernladuk]

You're right. Interestingly HMRC's Business Entity Tests document (http://www.hmrc.gov.uk/ir35/guidance.pdf) says on page 11:



So IR35 is on a contract by contract basis (like you say), but the Business Entity Tests which they use to determine whether you fall inside or outside IR35 are not!

Interesting.

The tests are a rule of thumb to give them guidance as to whether or not to come after you. Very general, not legislation and not something they will hammer you with in court. The individual contracts, however, they will.

[TheCyclingProgrammer]

In the Business Entity Tests (http://www.hmrc.gov.uk/ir35/guidance.pdf which are about HMRC's "risk-based approach to checking customers' compliance with the intermediaries legislation commonly known as 'IR35'") the Assistance test on page 17 asks "Does your business engage any workers who bring in at least 25% of your yearly turnover?".

I think this matter is absolutely relevant.

It's only relevant if you're interested in scoring a few points on the BET which are generally bollocks and only act as a pointer to your risk of being investigated, not whether or not you are actually in or out.

The particular question you highlight doesn't even seem to relate to what you are asking. You haven't engaged somebody to directly bring in any extra revenue for you (i.e. you aren't billing clients for their time/using them as a sub), they are doing some work for you on a product the revenue of which has nothing to do with IR35.

So no, this has nothing to do with IR35 at all.

Forget IR35, get a simple agreement in place with the worker if possible, make sure you receive proper invoices and carry on with your business!

[ASB]

Forget IR35, get a simple agreement in place with the worker if possible, make sure you receive proper invoices and carry on with your business!

+1

It shouldn't be too hard to do this. It doesn't necessarily need to be too formal, I mean email, description. response with an estimate, confirmation of final pricing, payment.