Client wants me to take on new work as somebody's leaving - IR35 risk?

[perspiration]

Background:

I've got a pretty good client, really happy to be working with them. They've independently assessed me and agreed that I am outside IR35. The task is decent, and it's generally a great gig. My contract was due to conclude at the end of March, but it was extended for 6 weeks to ensure there was enough time to complete the project.

The client has advised that somebody within his team is leaving very soon and that they want me to pick it up and look after it until somebody permanent joins in 2-3 months.

The new piece of work

This area of work was not in the initial pre-contract discussions that took place in September of last year. Part of it overlaps, but it's objectively a new area and any reasonable person would see that. I would continue working on my current project and take on additional tasks.

As well as running the piece of work for the next 3 months, the work would effectively be a project to transform and improve the processes so that the permanent person taking it in 3 month can inherit something far more efficient & user-friendly. (Transformation activity and process improvement is the service my limited company offers. I'd never take on a new responsibility unless I could take control of it and change the models & processes.)

The task will have a BAU element, and I would have to run that alongside the transformational activity. There would be required outputs and deadlines to meet (month-end close activity), but I'd be largely free to decide how I complete the tasks and the methodology I use to reach the required outputs.

My thoughts:

It's my understanding that a new pre-contract discussion would have to take place (to scope out the work), and that I would need to renegotiate a completely new contract if I did want to take on this new piece of work after learning what it fully involves.

I'd be maintaining the same working practices as now, so am confident my IR35 status would remain as outside. My client is supportive of this.

Questions:

Is there anything that I need to be particularly aware of?

How can I ensure that this is kosher as far as the tax man may be concerned?

Is my current understanding correct?

What about my rate?

I'm considering a rate increase - both because it'd be an increase in responsibilities, but also to tangibly show that the new piece of work was renegotiated and that I wasn't just taking on the task because the client controlled me. I feel like doing this piece of work at the same rate would be good evidence for the taxman to say that the client was able to move me from task to task.

If I was an employee, I'd happily pick up this piece of work - but I am not. I am running a business, so even though personally it's in my nature to want to fix the client's problems I know I have to do this right.

Am I missing anything?

Am I misunderstanding the risk here? Can anybody please share some insight? Thank you!

[northernladuk]

They might be supportive of what you do but I'm really struggling to see how back filling for a perm for a short period can be outside. You are temping not contracting however you dress it up. Is the client really willing to go along with a bit of sham to put you outside? If they are then just fill your boots. Risk is on them and it's so short it's not gonna break the bank if it goes wrong at the end of the day. Merging it would make it more difficult to spot as well. Lots of ways of playing it but I'd say don't kid yourself you are providing deliverables when really it's just a perm backfill. It is what it is, dress it up, do what you can to mitigate any attention and just get on with it.

Upping the day rate is a great idea yes but has absolutely no impact on IR35 or provides any evidence. Its purely a commercial agreement.

That's a shortened answer as the post was too long to really read properly so apologies if I missed something.

[WordIsBond]

Ignore NLUK. He's been talking to so many people who don't know what they're about that he's beaten down and thinks everyone is like that.

Sounds like you know what you are doing. Yes, a separate contract makes sense, it's a separate task. Explain to the client, "I've been staying on the right side of IR35 for years, this is the way to go, it's for your protection."

If you are confident it is outside, then go for it. The risk is on the client anyway.

One thing that isn't clear to me, are you doing these two roles in parallel? Are they two part time roles, or are you taking on two full-time roles concurrently with very long hours, or are you working the same number of hours but extending longer?

The only real justification that I can see for any significant rate change is if you were working 30-40 hours a week and now you are going to be working 60. If that's the case, go for it.

There's a risk in asking for a rate increase if there's no obvious justification for it. The risk is that the client thinks you are asking for a separate contract just to get a higher rate, rather than for IR35 protection. Sounds like you've got a relationship with a lot of trust, and you don't want to jeopardise that. If they've said things that suggest a different rate this concern is probably moot.

[northernladuk]

Ignore NLUK. He's been talking to so many people who don't know what they're about that he's beaten down and thinks everyone is like that.

Looking back I appear to talk with you more than most on here

Sounds like you know what you are doing. Yes, a separate contract makes sense, it's a separate task. Explain to the client, "I've been staying on the right side of IR35 for years, this is the way to go, it's for your protection."

If you are confident it is outside, then go for it. The risk is on the client anyway.

One thing that isn't clear to me, are you doing these two roles in parallel? Are they two part time roles, or are you taking on two full-time roles concurrently with very long hours, or are you working the same number of hours but extending longer?

The only real justification that I can see for any significant rate change is if you were working 30-40 hours a week and now you are going to be working 60. If that's the case, go for it.

There's a risk in asking for a rate increase if there's no obvious justification for it. The risk is that the client thinks you are asking for a separate contract just to get a higher rate, rather than for IR35 protection. Sounds like you've got a relationship with a lot of trust, and you don't want to jeopardise that. If they've said things that suggest a different rate this concern is probably moot.

And that's your opinion. We are glass half empty/full. At the end of the day it's backfilling a perm. That fact cannot be escaped. As we've both said in our different ways, dress it up and go for it, but that doesn't escape the fact he's temping for a perm role. Will it make a difference in the long run, no, and we both agree on that so it's a non issue going forward.

[wattaj]

...At the end of the day it's backfilling a perm. That fact cannot be escaped. As we've both said in our different ways, dress it up and go for it, but that doesn't escape the fact he's temping for a perm role...

^^ This.

This is one of the reasons why "interim managers" find it so hard to argue an outside position. One's a temp in all but name.

[perspiration]

Thanks for the responses everyone, given me a bit to think about. It very much could be seen as a 'backfill', which does make things difficult.

There may be an option for the client to transfer the business as usual stuff (month end) of the task to their permanent staff, and I pick up a more transformational aspect - consulting with the permanent staff along the way. They would own the tasks and generate the outputs, but I'd support them and consult/implement any process changes and help them in the creation of the outputs.

In that case, the backfill has been picked up by other people, but I'm still able to add value in terms of supporting them where they may not have the required skillset/capacity to do it all.

It's pretty complicated & a huge grey area.

The risk would sit with the client due to the new change coming in April, but the 6 weeks before then the risk would be mine. The current work I am doing with the client was never a backfill, and am satisfied that is all fine - I guess the risk is a second contract that is potentially not outside may imply the first was not fully outside.

Cheers everyone.

[northernladuk]

Thanks for the responses everyone, given me a bit to think about. It very much could be seen as a 'backfill', which does make things difficult.

There may be an option for the client to transfer the business as usual stuff (month end) of the task to their permanent staff, and I pick up a more transformational aspect - consulting with the permanent staff along the way. They would own the tasks and generate the outputs, but I'd support them and consult/implement any process changes and help them in the creation of the outputs.

In that case, the backfill has been picked up by other people, but I'm still able to add value in terms of supporting them where they may not have the required skillset/capacity to do it all.

It's pretty complicated & a huge grey area.

The risk would sit with the client due to the new change coming in April, but the 6 weeks before then the risk would be mine. The current work I am doing with the client was never a backfill, and am satisfied that is all fine - I guess the risk is a second contract that is potentially not outside may imply the first was not fully outside.

Cheers everyone.

Sprinkle some more glitter on it. That will help.....

Very little risk of the new gig impacting the old one. Different roles, different assessment so next to no risk. The only risk might be that the determination for the new one is a complete crock in which case HMRC will go through every single one the client has made which will be horribly painful. Where it's nice where clients will make the contract fit for the contractor it's a dangerous path that will unravel if it becomes common place and HMRC starts sniffing again.
That said, it's all the clients risk, but still I think this is the future pain when everything settles down.

[WordIsBond]

If you have doubts about it, operate it as an inside contract and pay your salary and pension contributions out of it. It's not going to cost you much, you can pay this year's salary and next year's salary out of it, and if you are making pension contributions as well, you can basically wipe out the tax liability on it even with it inside.

If it really is simply back-filling a perm, yeah, these guys are right. I didn't read it as simply doing what a perm would do. That's something you'll have to decide.

If you operate it as a separate contract and inside IR35, that gives you and your client a nice story if HMRC ever comes calling. "Sure, this was outside. We did an inside contract too, and handled it appropriately. We're not tax dodgers. Go bother someone who cheats."

[PTP]

What’s this fascination some of you have that “doing the same task as a perm simply makes you inside IR35”?

Many experts have singled out that there is no rule/case that supports this theory.

TCS/Capita/Other BPOs are engaged to send their graduates (earning say £25k/year) onto client BAU tasks (and charging maybe £300/day for it). i.e. Only a tiny fraction of the £300/day is having PAYE applied to it.

So there’s no reason why a 1-person ltd couldn’t be engaged instead to do something a permie does / can do and be treating it as revenue. Hence there is no rule that backs your theory......Instead, it’s the working practices whilst carrying out the task that matters and making sure that task is agreed upfront.

[northernladuk]

What’s this fascination some of you have that “doing the same task as a perm simply makes you inside IR35”?

Many experts have singled out that there is no rule/case that supports this theory.

TCS/Capita/Other BPOs are engaged to send their graduates (earning say £25k/year) onto client BAU tasks (and charging maybe £300/day for it). i.e. Only a tiny fraction of the £300/day is having PAYE applied to it.

So there’s no reason why a 1-person ltd couldn’t be engaged instead to do something a permie does / can do and be treating it as revenue. Hence there is no rule that backs your theory......Instead, it’s the working practices whilst carrying out the task that matters and making sure that task is agreed upfront.

Maybe there is no case history to back this up as people have err'd on the side of caution and not gone on in to BAU/perm roles as outside. They got filled by temps or other perms. If it was common then it's likely someone go caught. That said you could argue JLJ is similar and he got found to be doing a permie job.

There isn't a reason correct, but has to be treated very carefully. It's the most risky type of role and saying no one has ever been caught is a very good defense. If you are back-filling a perm for a short period while another perm comes in has all the flags of a problem so address them one at a time very pragmatically. Being overconfident saying I'm a contractor it doesn't apply to me is wrong. Look at the facts and make a decision. If they want a perm back-fill that can't substitute, needs to be directed and controlled and expects to gets work throughout the period then it doesn't matter how much glitter we put on it.

Just best to walk away from anything like this if at all possible.