IR35 - vagaries of status

[chomps]

Since agreeing to extend my 3 month contract (private sector client) for another 10 months, i've become more aware of IR35 (just through general discussions and forums like this) as i'm quite new to contracting, and i'm unsure of whether its something to worry about or not. Having had a few discussions with the client, they just say that given my contract value (which is pretty low daily rate compared to most others) would make it really not worth the bother for HMRC to investigate and that i'm essentially over-worrying and they have a lot 'bigger fish to fry'. However, prior to this i [perhaps naively] asked HMRC to check my status, who said i would be caught by IR35 on the balance of my working relationship. Would this essentially earmark me for investigation?

Since then, having thought about the practicalities of the contract and my situation, i've said to the client i am only prepared to stay if i can work from home (except coming in for meetings) as i live a long way from London. They agreed to this, which i would think would assuage one major concern of HMRC which is that i have essentially dictated my working conditions, as such pointing to proper self-employment and help moving me out of the IR35 line of fire.

However, having researched IR35 a bit more, i'm inclined to go the whole hog, and ask the client to agree to a Confirmation of Arrangements document, which (as well as putting down in writing being based from home) would outline all the factors which keep me from being deemed an employee. The different elements (e.g. manner in which i complete my work etc, relationship with manager/team etc.) i consider to be outside IR35. I would then respond with this to HMRC in the hope that they agree and then forget about me. Or should i just not bother replying at all and forget about it, safe in the knowledge that a) i dont believe that I'm caught by IR35 anyway, especially now i've dictated my own working pattern, and b) the chances of being investigated are very small anyway (given HRMC resources and the relatively small value my tax return is likely to be).

I guess what i'm essentially trying to figure out is whether contractors whose status are somewhat vague (i.e. some elements point towards proper self-employment, whilst others point towards employment) should proactively change their contract conditions to ensure they definitely dont fall within IR35, or whether the risk for the majority of people is small enough to not bother about.

Thanks

[Lance]

Yes it was naive asking HMRC.

If you've asked them for permission to work from home then the IR35 status is unchanged. If you'd told them you were going to WFH then you'd have the argument that you aren't being directed and controlled, therefore IR35 cannot apply.

A confirmation of arrangements can work, but beware of becoming party to a fraudulent document that's been written only to help your tax affairs.

As for your last point. You need to read more about IR35. Only one of the 'pillars' needs to be on your side for you to be outside.

[chomps]

Yes it was naive asking HMRC.

If you've asked them for permission to work from home then the IR35 status is unchanged. If you'd told them you were going to WFH then you'd have the argument that you aren't being directed and controlled, therefore IR35 cannot apply.

A confirmation of arrangements can work, but beware of becoming party to a fraudulent document that's been written only to help your tax affairs.

As for your last point. You need to read more about IR35. Only one of the 'pillars' needs to be on your side for you to be outside.

How would they actually know this though? The discussion was in person, so there's no proof. In fact how do they investigate any of this? Do they go through peoples emails? There are tens of thousands of contractors at any one time, in order to make best use of their resources, they would surely have to be really good at targeting certain types of contract to have any hope of winning an investigation.

Since you mention it though, i said i would not continue the contract unless i was based from my own office address, which they accepted.

[Lance]

How would they actually know this though? The discussion was in person, so there's no proof.

fraud is fraud..... It's your risk. How good are you lying under pressure?

In fact how do they investigate any of this? Do they go through peoples emails? There are tens of thousands of contractors at any one time, in order to make best use of their resources, they would surely have to be really good at targeting certain types of contract to have any hope of winning an investigation.

No idea. It's your risk. How good are you lying under pressure?

Since you mention it though, i said i would not continue the contract unless i was based from my own office address, which they accepted.

Do you have evidence of this or was it also verbal? It's your risk. How good are you lying under pressure?

[chomps]

fraud is fraud..... It's your risk. How good are you lying under pressure?

No idea. It's your risk. How good are you lying under pressure?

Do you have evidence of this or was it also verbal? It's your risk. How good are you lying under pressure?

How is it fraud, and how have you reached the conclusion that i'm lying?

[northernladuk]

How would they actually know this though? The discussion was in person, so there's no proof. In fact how do they investigate any of this? Do they go through peoples emails? There are tens of thousands of contractors at any one time, in order to make best use of their resources, they would surely have to be really good at targeting certain types of contract to have any hope of winning an investigation.

Since you mention it though, i said i would not continue the contract unless i was based from my own office address, which they accepted.

They'll go through a very detailed and highly stressful investigation as at least one of our members can attest to. I'd expect it's up to you to provide evidence to defend yourself. We don't really know the exact reasons for an investigation to start but it's been said it can start from any other form of investigation being random or due to inconsistencies in your filing and the like.

IMO yes it's something you should worry about. It takes awhile to get a half decent grasp but it will apply though out your contracting career so essential to know. Once you are up to speed it doesn't take long to follow the right process, have your contract checked, make sure you don't fall in to traps on site, get IPSE+ or TLC35 insurance etc and also to collect any information you can, emails to say you aren't allowed to attend permie does, copy of your pass if it says contractor on it.

Once you've got that nailed you can, if you wish, take a rather more lax approach to it dependant on your evaluation of the risk vs loss. Some people on here don't give a flying monkies as there are so few wins it won't happen to them. IMO everyone that got investigated thought it wouldn't happen to them so I'm quite happy to tow the line to stay off the radar rather than deal with 2 years of crap.

I'm not so sure value comes in to anything HMRC do. They aren't well known for using common sense.

On to common sense. Contacting HMRC to ask if you are inside or outside is utter suicide IMO. Actually being inside isn't a reason to investigate. It's a valid situation, most of the Public sector are there but they now know your status. All they have to do is check you are accounting correctly and they've got themselves a live one. I think someone mentioned it's an impartial service but I just can't believe that. Steer well clear.

Confirmation of arrangements 'might' help but the problem is getting someone in the right position to sign it. Better to have a good knowledge of IR35 and collect the evidence.

IMO working from home has sod all to do with IR35. Permies can do that so it doesn't differentiate in anyway really. Also it's not unreasonable for a client to say contractors can't work from home. It's not a flag as they may just want to keep an eye on expensive suppliers so they are getting value for money. All IR35 neutral.

No point trying to get a confirmation of arrangements when you are referring to your client as 'manager'. Permies have managers. Pedantic I know but get it on your heard and other things will come naturally to you.

i consider to be outside IR35. I would then respond with this to HMRC in the hope that they agree and then forget about me. Or should i just not bother replying at all and forget about it, safe in the knowledge that a) i dont believe that I'm caught by IR35 anyway, especially now i've dictated my own working pattern, and b) the chances of being investigated are very small anyway (given HRMC resources and the relatively small value my tax return is likely to be).

How do you think this will go when on one side is you who admits they don't have a strong grasp of IR35 and the other is HMRC who believe they know chapter and verse on it and wrote the legislation? They'll drop potentially thousands of pounds of claim on your word. Think again buddy

IMO put the time and effort in and learn it. THEN you can make your own call as to whether you bother with it. Making that call with only a half baked understanding is a poor decision.

[Lance]

How is it fraud, and how have you reached the conclusion that i'm lying?

I don't know whether you would lie or not, but given that HMRC have told you you're inside, you disagree and want to provide/create evidence; created not only after the fact but after you understand the facts, purely to avoid tax; I suspect you are planning on being somewhat creative about the actual facts.

That is not necessarily a problem as long as you can, under pressure, stand by your alternative version of the truth, and the history behind the truth, you are trying to represent.

[chomps]

They'll go through a very detailed and highly stressful investigation as at least one of our members can attest to. I'd expect it's up to you to provide evidence to defend yourself. We don't really know the exact reasons for an investigation to start but it's been said it can start from any other form of investigation being random or due to inconsistencies in your filing and the like.

IMO yes it's something you should worry about. It takes awhile to get a half decent grasp but it will apply though out your contracting career so essential to know. Once you are up to speed it doesn't take long to follow the right process, have your contract checked, make sure you don't fall in to traps on site, get IPSE+ or TLC35 insurance etc and also to collect any information you can, emails to say you aren't allowed to attend permie does, copy of your pass if it says contractor on it.

Once you've got that nailed you can, if you wish, take a rather more lax approach to it dependant on your evaluation of the risk vs loss. Some people on here don't give a flying monkies as there are so few wins it won't happen to them. IMO everyone that got investigated thought it wouldn't happen to them so I'm quite happy to tow the line to stay off the radar rather than deal with 2 years of crap.

I'm not so sure value comes in to anything HMRC do. They aren't well known for using common sense.

On to common sense. Contacting HMRC to ask if you are inside or outside is utter suicide IMO. Actually being inside isn't a reason to investigate. It's a valid situation, most of the Public sector are there but they now know your status. All they have to do is check you are accounting correctly and they've got themselves a live one. I think someone mentioned it's an impartial service but I just can't believe that. Steer well clear.

Confirmation of arrangements 'might' help but the problem is getting someone in the right position to sign it. Better to have a good knowledge of IR35 and collect the evidence.

IMO working from home has sod all to do with IR35. Permies can do that so it doesn't differentiate in anyway really. Also it's not unreasonable for a client to say contractors can't work from home. It's not a flag as they may just want to keep an eye on expensive suppliers so they are getting value for money. All IR35 neutral.

No point trying to get a confirmation of arrangements when you are referring to your client as 'manager'. Permies have managers. Pedantic I know but get it on your heard and other things will come naturally to you.



How do you think this will go when on one side is you who admits they don't have a strong grasp of IR35 and the other is HMRC who believe they know chapter and verse on it and wrote the legislation? They'll drop potentially thousands of pounds of claim on your word. Think again buddy

IMO put the time and effort in and learn it. THEN you can make your own call as to whether you bother with it. Making that call with only a half baked understanding is a poor decision.

Fair points, so what's the next step, get an IPSE contract review?

[northernladuk]

Fair points, so what's the next step, get an IPSE contract review?

Well it should have been the first step but yes. You need to know what situation you are in. Problem is if it fail then it's too late to negotiate changes. You've got an inside IR35 contract you've already been working to. The only way to be safe would be to declare yourself inside for that period. No insurance will cover you for past work on a contract that failed a review.

You've got to hope it passes and if not you've got to hope the agency will cancel it and make the changes you need. Remember though, your working practices trump your contract.

[WordIsBond]

Did you ask HMRC during the initial contract, or during the new contract? IR35 is on a contract basis, you are just starting your second contract.

If you asked them during the initial contract, this is easy. Declare it inside IR35, and pay your entire salary for the year out of it, make some pension contributions, too, if you can afford it.

Then, declare the second contract outside. Spend the next few days reading everything you can on IR35. Then, write a confirmation statement that is honest but tells the story you want it to tell. Get the client to sign off on it -- not a contract, just a statement to give HMRC if asked about working conditions. Include definitely that the decision is yours as to where you work. NLUK rightly says permies may get to work at home, but they rarely get to make that decision. So that is a definite plus.

Do not respond to HMRC. Just carry on. You raised your head above the parapet, so declare the first contract inside. Then, duck your head and don't try to convince them, just get on with working. Join IPSE. Keep a record of anything that shows you to be outside -- emails you send telling them how you are doing things (rather than asking), any email that shows you are not part and parcel of the organisation, anything that sets you off from permies.

And avoid talking to HMRC if you can.

Is this through an agent, or direct? It sounds maybe like you are direct to the client?