Benefits of multiple people contracting under the same limited company

[WordIsBond]

Well, the ECR case was decided, in part, based on the fact that Elaine Richardson had been behaving like a business rather than an employee for a long time. It wasn't entirely decided on the individual contract, whatever HMRC tells us. The more you look like running a business, the better case you can make to the judge.

But the biggest impact is that it can reduce the risk of investigation.

What triggers an investigation.

Things relevant to this discussion: Two directors rather than a sole director. Relatively low turnover (it will be higher if there are two contractors). Minimal outlays (with two consultants, you'll be paying more than 10K in salaries). Changeable turnover (should be more stable generally, since hopefully one will be working when the other is on the bench).

He added: "More obvious tips also apply: ensure your company presents itself in a businesslike way, with a company letterhead for all correspondence, [particularly] with HMRC".

That letterhead will have two directors with a different surname.

Contractor Calculator's IR35 test asks if your company has a revenue stream other than your current contract. Having two contractors means the answer is yes. That's not going to be conclusive if your working practices put you inside IR35, but it can be one more factor on your side.

I consulted a solicitor who specialises in this area -- he said no matter how we structure the company, having more than one fee earner in our company is a big plus, greatly reducing the risk of investigation in the first place and strengthening our case if investigated.

Nothing is guaranteed with IR35, of course.

[jamesbrown]

Well, the ECR case was decided, in part, based on the fact that Elaine Richardson had been behaving like a business rather than an employee for a long time. It wasn't entirely decided on the individual contract, whatever HMRC tells us. The more you look like running a business, the better case you can make to the judge.

Red herring. Yes, the judge referenced some of the "in business" factors but, make no mistake, the case was won emphatically on all of the traditional measures. Operating a company with two directors/workers won't make the slightest difference if all three pillars of employment status are lost. If you were around when IR35 was first announced, you may recall some of the wheezes that were postulated at the time, such as clubbing together with other contractors. Ultimately, since then, the case law has clarified what really matters, and having a website or working with your partner aren't remotely important.

But the biggest impact is that it can reduce the risk of investigation.

I assume you're conceding the point on RoS, as the services are always supplied by the contracted entity, by definition of substitution, and using a director/employee vs. subcontractor as a substitute is irrelevant (and it is about the right afterall).

On the point of investigation risk, how would you know? The risk profiling strategies that HMRC use are the subject of much idle speculation but, as the article you linked makes clear, no one knows. Fundamentally, though, turnover would be a useless metric. If risk is a product of probability and cost/loss, I would venture that (as things stand today) failure to file the statutory returns in a timely way poses the greatest probability of investigation and the amount taken in dividends is the best measure of potential loss to the exchequer. Neither of these are impacted by business structure. If YourCo is investigated, it's likely that all contracts would be investigated, i.e those secured by all workers/directors on behalf of the company. Either way, the point on HMRC risk profiling is moot.

Relatively low turnover (it will be higher if there are two contractors).

Eh?

Changeable turnover

Eh?

Contractor Calculator's IR35 test

I consulted a solicitor who specialises in this area -- he said no matter how we structure the company, having more than one fee earner in our company is a big plus, greatly reducing the risk of investigation in the first place and strengthening our case if investigated.

I'd politely suggest that you solicit advice from another, er, solicitor. Having more than one fee earner is unlikely to reduce your risk of investigation and all contracts will be scrutinised, ultimately. More importantly, no one knows. If they really suggested it would "greatly reduce" risk, that is poor advice indeed.

In the unlikely event that you are investigated, HMRC will build the best case they can. If one or more contracts (at one or more times, as clarified by JLJ) demonstrate all three pillars of employment through working practices, your partner won't be able to save you (and they become exposed indirectly, and potentially directly through their own contracts).

Anyway, this is getting a little off topic (sorry OP ). Aside from any perceived impact on IR35 status (there isn't one), there are several good reasons to not aggregate businesses.

[mudskipper]

I don't know who is right.

According to HR Magazine - Getting employment status right the risk of getting investigated really is very small, so if it is a benefit in changing structure, great, but it shouldn't be the motive for doing so.

"HMRC opened 192 IR35 inquiries into contractors in the most recent tax year (2013/14), 25% less than in 2012/13 and 81% less than in 2003/04, when it opened more than 1,000 investigations"


Check out IPSE's Tax and Financial planning events - I haven't been to one yet - I'm going to the one in Reading next week, but my understanding is that they will cover IR35 risks and factors. You don't even need to be a member to attend.

https://www.ipse.co.uk/events/2015/0...ial-planning-0

[WordIsBond]

On the point of investigation risk, how would you know? The risk profiling strategies that HMRC use are the subject of much idle speculation but, as the article you linked makes clear, no one knows.

And how would you know? You've been pretty emphatic here for someone who says "no one knows." But the article does quote a former tax inspector, so perhaps someone does know.

Anyway, this is getting a little off topic (sorry OP ).

Yeah, best leave it.

...there are several good reasons to not aggregate businesses.

100% agreed.

[jamesbrown]

And how would you know? You've been pretty emphatic here for someone who says "no one knows." But the article does quote a former tax inspector, so perhaps someone does know.


Yeah, best leave it.


100% agreed.

One can have an emphatic opinion In any case, this may all become moot as the new gov't rethinks things (we've heard it before, but I'm inclined to believe it this time...).

[mudskipper]

One can have an emphatic opinion In any case, this may all become moot as the new gov't rethinks things (we've heard it before, but I'm inclined to believe it this time...).

Indeed

Self-employment ambassador puts IR35 in his sights :: Contractor UK

[WordIsBond]

I'm inclined to believe it this time...).

Here I thought you were one of the most knowledgeable and level-headed posters on this forum, and then you throw that out there.

Maybe a little tinkering to provide a little more clarity, but I'll be surprised if it is really substantive. HMRC says IR35 is a lot of money and the government believes them. It is only worth a lot because it scares a lot of people into umbrellas. If there is real clarity, there will be less fear, fewer people under umbrellas, and so less money for George to play with. The only way more clarity won't cost them money is if it is made more draconian to keep the fear factor up. They have little incentive to really fix it.

I'm not overly cynical about life, but I am about government and tax. They'll reduce or simplify taxes in ways that are big vote-getters, but this isn't one of those.

[mudskipper]

Here I thought you were one of the most knowledgeable and level-headed posters on this forum, and then you throw that out there.

Maybe a little tinkering to provide a little more clarity, but I'll be surprised if it is really substantive. HMRC says IR35 is a lot of money and the government believes them. It is only worth a lot because it scares a lot of people into umbrellas. If there is real clarity, there will be less fear, fewer people under umbrellas, and so less money for George to play with. The only way more clarity won't cost them money is if it is made more draconian to keep the fear factor up. They have little incentive to really fix it.

I'm not overly cynical about life, but I am about government and tax. They'll reduce or simplify taxes in ways that are big vote-getters, but this isn't one of those.

So you don't believe a "Freelancer Limited Company" is likely to happen?

[jamesbrown]

Here I thought you were one of the most knowledgeable and level-headed posters on this forum, and then you throw that out there.

Maybe a little tinkering to provide a little more clarity, but I'll be surprised if it is really substantive. HMRC says IR35 is a lot of money and the government believes them. It is only worth a lot because it scares a lot of people into umbrellas. If there is real clarity, there will be less fear, fewer people under umbrellas, and so less money for George to play with. The only way more clarity won't cost them money is if it is made more draconian to keep the fear factor up. They have little incentive to really fix it.

I'm not overly cynical about life, but I am about government and tax. They'll reduce or simplify taxes in ways that are big vote-getters, but this isn't one of those.

I think they'll provide clarity in such a way that IR35 becomes moot, rather than addressing the IR35 rules directly (although they could tweak the rules for particular sectors, specifically the public sector). I note the link that ms posted on the desire for reform, but I don't think they'll suddenly find a way to simplify employment status (after all these years of trying, and failed experiments in various countries), which is at the root of IR35.

Something like the FLC would allow them to address the exchequer risk indirectly for those working through agencies, while maintaining IR35 "as is" (or near enough) for those working directly. I completely disagree with the notion that IR35 has been a failure for HMRC; it was always about the exchequer risk, and never about taxes collected directly. However, more recently, the optics of F2M and "over-paid" public sector consultancies have become toxic for a gov't with a "one nation" agenda (hence the focus on public sector contracts).

I think this gov't is far too clever (famous last words ) to mess around with the IR35 rules in any substantial way (like 80/20, 6 months, or similar) and much more likely to address the perceived problem indirectly. They really couldn't care less about SMEs, despite the rhetoric, but especially "PSCs", which are perceived to be a tax wheeze rather than real businesses (and this isn't just a UK phenomenon). Ultimately, there are bigger political risks than annoying a few hundred thousand PSCs.

(Again, sorry OP )

[eek]

So you don't believe a "Freelancer Limited Company" is likely to happen?

The only reason why a "Freelancer Limited Company" will appear is if someone claiming to represents contractors recommends it....