Questions on doing work for previous perm employer

[SomaTech]

I've taken the jump into the world of contracting as a developer with my first contract starting next week, so I'm currently serving out my notice period for my perm employer.
Due to the knowledge I have on the internal systems, as I designed and developed these, I have been asked if I could sell them a bank of consultancy hours/days for any work that comes up whilst they find a new perm developer.
The consultancy work would be pretty much coding support and advice, at evenings or the weekends, which I would dictate the times I do work and just draw down from the bank of hours, so I think that would put it outside IR35.

As this is my first time going into contracting, I don't know how to go about this as the contract I'm starting next week is through an agency, so they have written up the contract etc.

Any advice on this set up would be appreciated before I have the discussion this week with my current employer.

[WordIsBond]

Google 'retainer site:contractoruk.com'.

You'll find some discussion of similar setups, I think.

[Larsen Howie]

I've taken the jump into the world of contracting as a developer with my first contract starting next week, so I'm currently serving out my notice period for my perm employer.
Due to the knowledge I have on the internal systems, as I designed and developed these, I have been asked if I could sell them a bank of consultancy hours/days for any work that comes up whilst they find a new perm developer.
The consultancy work would be pretty much coding support and advice, at evenings or the weekends, which I would dictate the times I do work and just draw down from the bank of hours, so I think that would put it outside IR35.

As this is my first time going into contracting, I don't know how to go about this as the contract I'm starting next week is through an agency, so they have written up the contract etc.

Any advice on this set up would be appreciated before I have the discussion this week with my current employer.

There could be a bit of an issue from an IR35 perspective here for previous employment purposes. There’s a couple of questions that would need to be considered –

1) Do you have any engagements elsewhere / do you have intention to get a contract elsewhere anytime soon? Your comment hints that you are, but just to be sure.
2) Is there a difference in the work you do now, compared to employment?
3) Similarly, is there a significant difference in the trappings of how you do the work now in comparison? (IE. Do you work entirely from home now, 2 days a week instead of 5, that sort of thing)
4) How long is the engagement with your previous employer realistically going to be, and is there a good business reason for going back?

I suspect there will be a reasonable difference in respects to number 3 when you actually do make the move, but the difficulty with previous employment cases from an IR35 perspective is simply there needs to be a very good reason (such as a significant change in circumstance) for going back as a contractor if it’s within a 6 month period (ideally a year) and even more so if you’ve already got an arrangement before your notice period has finished.

If there is a rather large difference between how you were operating / what you were doing, and what you are or will be doing for the client, then usually it is defendable from an IR35 perspective, so long as you are solid on the key status tests (Substitution, Control, Mutuality of Obligation), but previous employment will never be good unfortunately.

Secondly, retainer fees can be a little tricky from an IR35 perspective themselves if not approached in the right manner. I would suggest ensuring it is made very clear that you won’t be paid to be “on call”, you would have – as you suggest – a bank of hours that if you are called upon, you would charge against those hours and only ever get paid when you actively complete work for the client. Any hours that are not used upon termination of the contract for whatever reason would simply not be paid for.

Hope that helps!

- Matt

[SomaTech]

There could be a bit of an issue from an IR35 perspective here for previous employment purposes. There’s a couple of questions that would need to be considered –

1) Do you have any engagements elsewhere / do you have intention to get a contract elsewhere anytime soon? Your comment hints that you are, but just to be sure.
2) Is there a difference in the work you do now, compared to employment?
3) Similarly, is there a significant difference in the trappings of how you do the work now in comparison? (IE. Do you work entirely from home now, 2 days a week instead of 5, that sort of thing)
4) How long is the engagement with your previous employer realistically going to be, and is there a good business reason for going back?

I suspect there will be a reasonable difference in respects to number 3 when you actually do make the move, but the difficulty with previous employment cases from an IR35 perspective is simply there needs to be a very good reason (such as a significant change in circumstance) for going back as a contractor if it’s within a 6 month period (ideally a year) and even more so if you’ve already got an arrangement before your notice period has finished.

If there is a rather large difference between how you were operating / what you were doing, and what you are or will be doing for the client, then usually it is defendable from an IR35 perspective, so long as you are solid on the key status tests (Substitution, Control, Mutuality of Obligation), but previous employment will never be good unfortunately.

Secondly, retainer fees can be a little tricky from an IR35 perspective themselves if not approached in the right manner. I would suggest ensuring it is made very clear that you won’t be paid to be “on call”, you would have – as you suggest – a bank of hours that if you are called upon, you would charge against those hours and only ever get paid when you actively complete work for the client. Any hours that are not used upon termination of the contract for whatever reason would simply not be paid for.

Hope that helps!

- Matt

Thanks for the response, here's a reply to the questions you listed.

1. Yes I will be starting a contract next Monday which will be a full time contract for 6 months, which I hope will be extended. After speaking with a friend he believed having multiple contracts running at the same time, will be a good sign of running a consultancy.
2. I think the work would be different, whereas I do a range of different tasks (c#, helpdesk, power bi, sql, general system maintenance) in my FT work just now, I would only be providing support for c# in the retainer agreement, and consultancy on any new coding assignments that they need.
3. Yes significant difference, currently I am Mon-Fri 9-5 in the office just now, I would be doing the support/consultancy fully remote and it wouldn't really be a set x amount of days per week, it would be when I would find the time to do the work in the evening or at the weekend.
4. I would expect this to last a few months at least, and the reason for going back is that they always hire contractors, and have some big projects starting at the end of the year, so maintaining a good relationship could be beneficial for future work opportunities.

From the fees perspective, I would expect us to agree on a set amount of hours for the month/quarter and these would be paid upfront, and anything that isn't used would expire after the time-limit or when the bank of hours is used up, at which point a further agreement could be reached.

As I've said in the original post, this is my first move into contracting so don't have any experience on how to go about agreements like this.

[WordIsBond]

Did you do what I suggested? There are several good threads that will show up, including some discussion of sample retainer agreements.

[SomaTech]

Did you do what I suggested? There are several good threads that will show up, including some discussion of sample retainer agreements.

Yes, sorry I thought I had replied, I did a search last night and it gave me some good posts related to the agreement I'm after. Thanks!

[WordIsBond]

Excellent. I use retainers and so does at least one other regular here. Feel free to hit us with any followup questions if need be.

[Larsen Howie]

Thanks for the response, here's a reply to the questions you listed.

1. Yes I will be starting a contract next Monday which will be a full time contract for 6 months, which I hope will be extended. After speaking with a friend he believed having multiple contracts running at the same time, will be a good sign of running a consultancy.
2. I think the work would be different, whereas I do a range of different tasks (c#, helpdesk, power bi, sql, general system maintenance) in my FT work just now, I would only be providing support for c# in the retainer agreement, and consultancy on any new coding assignments that they need.
3. Yes significant difference, currently I am Mon-Fri 9-5 in the office just now, I would be doing the support/consultancy fully remote and it wouldn't really be a set x amount of days per week, it would be when I would find the time to do the work in the evening or at the weekend.
4. I would expect this to last a few months at least, and the reason for going back is that they always hire contractors, and have some big projects starting at the end of the year, so maintaining a good relationship could be beneficial for future work opportunities.

From the fees perspective, I would expect us to agree on a set amount of hours for the month/quarter and these would be paid upfront, and anything that isn't used would expire after the time-limit or when the bank of hours is used up, at which point a further agreement could be reached.

As I've said in the original post, this is my first move into contracting so don't have any experience on how to go about agreements like this.

Judging by your response, I don’t imagine there’ll be a previous employment issue. This is predominantly because the manner in which you provide the services appears to be quite vastly different to how you operated as an employee (Location of services and time spent providing the services are both completely different) and the fact that the actual role itself is quite cut back over what you used to do.

As mentioned, previous employment is never a good thing, but I’d be reasonably happy to say it’s defendable if it’s ever queried.

As for the fees, purely from an IR35 perspective you should never get paid for time you’ve not spent providing the services, so the current arrangement where you receive payment up-front for the hours irrespective of if you actually deliver services totalling those hours, could be seen as slightly problematic from an IR35 perspective.

If possible I would suggest considering an arrangement where you only bill for hours you provide services – IE. You agree a bank of 50 hours at a given rate in a given 6 month period, and when you actually perform services you simply invoice for those hours and get payment once complete – not beforehand. This would be more in keeping with how IR35 would view an ideal contractor. This is a somewhat minor point though, so don’t get too hung up on it!

[WordIsBond]

As for the fees, purely from an IR35 perspective you should never get paid for time you’ve not spent providing the services, so the current arrangement where you receive payment up-front for the hours irrespective of if you actually deliver services totalling those hours, could be seen as slightly problematic from an IR35 perspective.

There is hardly unanimity of opinion on this point. If there is not Supervision/Direction/Control, as appears here, he is outside IR35 no matter how much Mutuality of Obligation there might be.

Retainers are common in business and are not indicators that a person is an employee. They are indicators that one business wishes to retain the services of another business on an on-going basis with some level of certainty. If his ex-employer, now client, wishes to establish that kind of relationship, and by agreeing he locks in a long-term part-time role, then it probably strengthens his overall IR35 position, because it makes it a lot easier to argue he's in business for himself if he has two concurrent contracts. Having concurrent contracts has been a factor in more than one IR35 case.

It's also a small contract, with him only available on evenings and weekends. That means if he's nervous about it he could always just declare it to be inside IR35, pay his £700 / month salary out of that contract, and pay any pension contributions out of it as well.

My company currently has six retainer agreements with clients, one of which is my former employer. They commit me to up to 80 hours a month, and have never required more than 45 hours total. That made for a busy month because I had other stuff going but I didn't end up having to do all 45 hours personally, and it was fine. It's also very lucrative to get paid for 80 when you usually do less than 30 hours, even if you give a discount on the retainer.

[man]

How about insuring against the risk of Hector and doing what makes the most sense to you? I'm just floating the suggestion as I've been thinking about it lately in an attempt to get out from letting IR35 rules affect how I run my business (as it's much more shrewd from a purely commercial standpoint to bill for 50 hours irrespective, if the client is willing to sign 50).

NB: To anyone considering this please make sure the insurance you buy covers your circumstances!