I have a contract but no work

[DeadKenny]

Going by some of the things I've been reading here, working outside IR35 is near impossible based on what I know of IT companies. However I get the impression there are plenty of people who do it.

[XperTest]

you are not related to Denny are you by any chance?

No, why?

[Denny]

Why is it that contractors are only considered to be a business when they work on a fixed price basis? Many service companies charge their services as time material. I know that IR35 prescribes all these methods of working rather than what is says in your contract but then HMRC hasn't been very successful at upholding this principle in court have they..? IT is just not always compatible with IR35 and I very much doubt that all the hardliners on this board when it comes to IR35 actually work exactly the way they claim, i.e. charge for a deliverable not time spent on it, work independently or even from home when they feel like it. If I hire you to write a piece of code before December 31st and you find out that the functional specs aren't even there for you to start until December 22th, will you just sit around the house at your own expense for a couple of weeks? If I then ask you to come in to do some other work in the meantime (perhaps writing the specs) that wasn't in the initial contract does that mean you are now under my control whereas before you weren't, so risking your IR35 excempt status? The IT world I work in is not the type of environment where I would want to agree beforehand to limit myself to a said deliverable at a set (total) amount. Firstly, the customer probably doesn't even know what they want at this point in time. Secondly, prior stages in the development process are bound to run behind schedule causing me to have to reschedule my work all the time (at my own expense?). Thirdly, there will be pressure to do work outside of the scope of what was initially agreed due to scope creep. Fourthly, most projects nowadays work iteratively to deal with some of these problems. If you just focus on delivering predefined deliverables you are being completely inflexible and this will no doubt harm your business in the long run. As long as IR35 does not take into account the dynamics of the service industry in which we operate and a very small minority indeed has been caught by IR35 why do some insist on arguing that everybody should work in exactly the same way some (not all) small businesses operate even if in reality this is hardly a sustainable business strategy given how the IT world and more specifically the IT contracting world works?

Who said anything about fixed price? It's quite possible to be IR35 exempt but work for a daily fee. Hourly rates are a non-starter as they imply you are being paid for time spent in the office, not job completion irrespective of how long that takes.

A daily fee means several things: it means that the work can be re-worked around the need to deliver a specified piece of work which should be listed on your Schedule of Works by a guaranteed deadline within the contractual time period. It means you can work Saturday's or else work during the week - whatever it takes. It also means that you can work whatever hours are required to finish that piece of work - whether that is 6 hours or 14 hours to finish it. There is no overtime gripes for clients to worry about.

A fixed daily fee also means that the client can offer you other ad hoc deliverables during the specified contracted period to fit around your Schedule of Work deliverables, if it becomes is necessary as service work often does due to the interdependencies of working with teams. It means they can also arrange for you to be released during the contractual period to do other things with your time - perhaps do some work for another client or else take a break. There is no guarantee that a full time contract lasting six months will bring in a specified income during that time for 5 days per week for six months. All full time means, in contactor terms, is having first call on your time for work when it is required, it doesn't mean full time employee hours like it is for a permie nor does it mean that the client has exclusive rights to your time when the work slacks off during the contractual period. Some banks do this now: force contractors to have a forced break during the contract period. Daily fees rather than a fixed fee for entire works on the Schedule of Works gives the client total flexibility as a result guaranteeing that they will have first call on your time to pick up the extra ad hoc work during the contactual period as well as finish off any SOW deliverables, if need be. If they agreed to a fixed fee for the entire SoW deliverables listed then contractors would be able to refuse any extra ad hoc work and still charge the entire daily fee for every day for the contractual period. This is not flexible enough for most large companies and largely unrealistic. A daily fee implies that there is a real risk involved in contracting because the client may not have the work for you to do for some times during the contract, but it also means that you have the flexibility to work for other clients when things slacken off - a strong pointer toward exemption from IR35 and it allows you to act like a real business. A daily fee gives you the right to work where you like and how you like - just like a real business should. No one being paid a daily fee should ever, ever agree to work to EB or client on site terms that suggest they are being paid an hourly pro-rata daily standard daily rate with the added disadvantage of not being able to charge for extra time when overload kicks in - hence longer hours. That again, implies MOO exists in the commercial relationship between end-client and contractor.

A specified hourly rate contact is a non starter for an IR35 exempt point of view because it means that you will have your hours specified on your contract and usually your specified days for working too - usually Monday to Friday, and any time over that is chargeable at additional cost either for the same hourly rate or a special higher overtime rate. It screams de facto employee - not business. There is no risk involved for your business because implied MOO is there - you bill for the time on an hour by hour basis, whether the work is there or not. That's why this type of work often involves you being supervised to make sure you put in your hours for which you are being paid as most EBs arrange a minimum number of billable hours per day. That means the client can give you any work, relevant or not to your field of expertise, to make up the time you need to spend on site, it also means you charge extra when the work goes overtime. Where's the risk there?

[Denny]

Going by some of the things I've been reading here, working outside IR35 is near impossible based on what I know of IT companies. However I get the impression there are plenty of people who do it.

Why do you think the IR are more interested in IT contractors than anyone else, despite these same rules applying to everyone who works on their own account (or thinks they do).

[VectraMan]

I tend to think of it in terms of satifying the customer. If you hire a builder and he shows up and does one hour a day and the job takes ages as a result, you won't hire him again. In fact you might fire him before the job is finished. You'd expect him to put in a full days work five days a week to get the work done in a reasonable time.

You also wouldn't want him turning up at 3am to work. You'd expect to negotiate a mutually convenient time to do the work.

Neither of those things make him your employee, and neither does a client expecting a contractor to put in roughly full time hours and at mutually convenient times.

A lot of this argument seems to apply to short term tasks. If your role is maintaining somebody's servers and network, then the there'll be times when you've loads to do, and times where you've nothing to do. But I'm a developer, and my last contract was working on a project by myself with a completion date of ASAP. Through most of it I never could have said I had nothing to do as I had several months of stuff to do. Should I have worked inconsistent hours to improve my IR35 status, or should I have kept my customer happy by being there every day to show him his work was getting my full attention?

Maybe Denny is right and the 99% of contractors that work this way are doomed and we should just give in to the IR. Yet the PCG have somehow won 1001 out of 1004 cases.

[Denny]

I tend to think of it in terms of satifying the customer. If you hire a builder and he shows up and does one hour a day and the job takes ages as a result, you won't hire him again. In fact you might fire him before the job is finished. You'd expect him to put in a full days work five days a week to get the work done in a reasonable time.

You also wouldn't want him turning up at 3am to work. You'd expect to negotiate a mutually convenient time to do the work.

Neither of those things make him your employee, and neither does a client expecting a contractor to put in roughly full time hours and at mutually convenient times.

A lot of this argument seems to apply to short term tasks. If your role is maintaining somebody's servers and network, then the there'll be times when you've loads to do, and times where you've nothing to do. But I'm a developer, and my last contract was working on a project by myself with a completion date of ASAP. Through most of it I never could have said I had nothing to do as I had several months of stuff to do. Should I have worked inconsistent hours to improve my IR35 status, or should I have kept my customer happy by being there every day to show him his work was getting my full attention?

Maybe Denny is right and the 99% of contractors that work this way are doomed and we should just give in to the IR. Yet the PCG have somehow won 1001 out of 1004 cases.

I am not saying I agree with the IR's interpretation of what should be deemed inside or outside, all I am doing is trying to point out the reality of what they are currently expecting from contractors to be deemed real businesses, according to the criteria set out by the IR against the contactual obligations to fullfill a long term contract rather than fixed term deliverable work - like plumbers. This ensures that if an investigation should happen then you won't have an almighty battle on your hands and an insurance company who refuses to cough up the extra tax and investigation costs. True the IR have lost most cases, but that doesn't mean to say that things won't get worse and any tax owing can be up to six years worth. I would rather put preventative steps in place than anything else. I simply pointing out what I think it actually takes, given the IRs criteria, to be safely outside IR35 on their own terms, not mine.

If I had my way I would declare all limited company contractors outside iR35 simply because EBs insist we work through them and we would be heavily restricted from working in larger companies without using EBs and not being able to work freelance.

Much of what I say needs to apply to the type of work you do. You need to make your own judgements and take expert advice.

[Forumbore]

I am not saying I agree with the IR's interpretation of what should be deemed inside or outside, all I am doing is trying to point out the reality of what they are currently expecting from contractors to be deemed real businesses, according to the criteria set out by the IR against the contactual obligations to fullfill a long term contract rather than fixed term deliverable work - like plumbers. This ensures that if an investigation should happen then you won't have an almighty battle on your hands and an insurance company who refuses to cough up the extra tax and investigation costs. True the IR have lost most cases, but that doesn't mean to say that things won't get worse and any tax owing can be up to six years worth. I would rather put preventative steps in place than anything else. I simply pointing out what I think it actually takes, given the IRs criteria, to be safely outside IR35 on their own terms, not mine.

If I had my way I would declare all limited company contractors outside iR35 simply because EBs insist we work through them and we would be heavily restricted from working in larger companies without using EBs and not being able to work freelance.

Much of what I say needs to apply to the type of work you do. You need to make your own judgements and take expert advice.

What is an EB?

[Denny]

What is an EB?

Employment Business.

[VectraMan]

I am not saying I agree with the IR's interpretation of what should be deemed inside or outside, all I am doing is trying to point out the reality of what they are currently expecting from contractors to be deemed real businesses, according to the criteria set out by the IR against the contactual obligations to fullfill a long term contract rather than fixed term deliverable work - like plumbers. This ensures that if an investigation should happen then you won't have an almighty battle on your hands and an insurance company who refuses to cough up the extra tax and investigation costs. True the IR have lost most cases, but that doesn't mean to say that things won't get worse and any tax owing can be up to six years worth. I would rather put preventative steps in place than anything else. I simply pointing out what I think it actually takes, given the IRs criteria, to be safely outside IR35 on their own terms, not mine.

I agree, in principle. But what you're suggesting is not the way most of us work, and most of us are able to work. I'm sure the uber-contractors here have moved on to fixed price contracts for multiple clients, and I managed it for a short time, but the reality is that most of us work for one client at a time, on site, and doing more of less full time hours because those are the contracts available. There's a chance we'll be screwed down the line, but the evidence of the PCG cases (actually 1,405 to 3) suggests it's extremely unlikely.

[Denny]

I agree, in principle. But what you're suggesting is not the way most of us work, and most of us are able to work. I'm sure the uber-contractors here have moved on to fixed price contracts for multiple clients, and I managed it for a short time, but the reality is that most of us work for one client at a time, on site, and doing more of less full time hours because those are the contracts available. There's a chance we'll be screwed down the line, but the evidence of the PCG cases (actually 1,405 to 3) suggests it's extremely unlikely.

If you look at the cases that have won IR35 you'll find, no doubt, that they do actually operate as real businesses or meet many of the criteria laid down by the Revenue. Out of the cases that have lost, and I've read a few, they all work like you describe above.

It seems like you're doomed to chant the mantra 'I'm IR35 exempt but only because there's a good chance I'll get away with it.' That's hardly the same as actually having an IR35 exempt commercial relationship and potentially through the tedium and frustration of being invested with an eventual happy ending.

If I was an IT contractor working on site all day every day for set hours and client control with no real right of sub and implied MOO, then I would personally conduct all my tax affairs through a safe brolly, make the most of legit dispensaations, invest my PAYE earnings well and have done with it. At the same time I would also ensure that the EB contract gives a robust amount of protection from being screwed by the client or agency by remaining opted in.

You do yourself no favours at all by conjuring up IR35 friendly contracts, paying a fortune for B&C to screw you for contract review costs that mean nothing in practice, forking out for IR35 insurance (that surely won't pay up anyway if the commercial relationship wasn't properly tested in the first place), looking over your shoulder for the IR knock at the door, and giving the EB the freedom to screw you for payment or too many restrictions on trade, or the client to give you the right to terminate without notice. I would be looking at 28 days each way.

Think black and white, not grey (because grey looks suspiciously like mud from where I'm sitting).