Business Entity Tests

[Kate Cottrell]

True but the IR35 expert is advising he speak to his accountant which I found a bit odd. I wouldn't mail Kate and ask her if I can put my 55" TV through my business...

Just thought it was an odd comment.

Sorry Northernladuk you are right I should have said take advice from someone that knows about IR35! I think I was subconsiously preparing to fend off all those "she has a vested interest" or is just "drumming up business" comments!

[BolshieBastard]

Sorry Northernladuk you are right I should have said take advice from someone that knows about IR35! I think I was subconsiously preparing to fend off all those "she has a vested interest" or is just "drumming up business" comments!

Kate gets my vote everytime.

The accountant would, however, be able to advise how much difference inside IR35 compared to outside IR35 would make to comapny \ your finances so yes, I would still discuss with my accountant.

[northernladuk]

Sorry Northernladuk you are right I should have said take advice from someone that knows about IR35! I think I was subconsiously preparing to fend off all those "she has a vested interest" or is just "drumming up business" comments!

Don't see why a bit of that will do any harm. Our accountants say 'speak to an accountant' so am sure it would be ok.

I think we all appreciate the pro's, be they accountants, agents or IR35 specialists posting on the forums so we can get all sides.

[socialworker]

Well a lot of views here. What it seems to say to me is that it is very difficult indeed to be sure of your IR35 status unless you are a traditional contractor in the sense of someone who comes in to do a distinct piece of work whether that is cut down a tree, or oversee a 6 month IT project. It looks like even if I get an IR35 review that is no guarantee that HMRC would take the same view.

In reply to NLUK it is a good point, I can say I want 3 days off next week, but if the team manager comes up and says can you go and sort out an urgent case on ward 10 this afternoon there is no way I could refuse unless I had something equally urgent then she might say OK and go on to someone else. Otherwise , well I could refuse but I probably would not get extended or they would find some excuse to end the contract. I suppose there are parallels with IT support -

There is a firm of online accountants currently targetting social workers through a well known agency who promise higher take home pay if you set up a ltd co with no mention of IR35 or anything like it. It has put me off them, if anything. I am working with a contract SW at the moment who reckons she is outside IR 35 because she can take days off when she likes, but she takes referrals handed out by the team manager same as me - essentially we are members of a team that gets a workload coming in that has to be allocated out to individuals. I dont come in the same time every day but then the permies have flexi time too. W - it goes on and on.

[northernladuk]

Well a lot of views here. What it seems to say to me is that it is very difficult indeed to be sure of your IR35 status unless you are a traditional contractor in the sense of someone who comes in to do a distinct piece of work whether that is cut down a tree, or oversee a 6 month IT project. It looks like even if I get an IR35 review that is no guarantee that HMRC would take the same view.

In reply to NLUK it is a good point, I can say I want 3 days off next week, but if the team manager comes up and says can you go and sort out an urgent case on ward 10 this afternoon there is no way I could refuse unless I had something equally urgent then she might say OK and go on to someone else. Otherwise , well I could refuse but I probably would not get extended or they would find some excuse to end the contract. I suppose there are parallels with IT support -

I can't see what you describe there as any different to a permie to be honest so don't see how that is relevant to IR35. I certainly do not see that as a parallel to IT support.

I am working with a contract SW at the moment who reckons she is outside IR 35 because she can take days off when she likes, but she takes referrals handed out by the team manager same as me - essentially we are members of a team that gets a workload coming in that has to be allocated out to individuals. I dont come in the same time every day but then the permies have flexi time too. W - it goes on and on.

Permies can take holidays whenever they like as well. Still haven't seen anything that differentiates you from a permie here so am still of the same mindset. Still don't see how you can offer services as a business not an employee.

[socialworker]

I tend to agree with you, that is what I thought when first thinking about it. Yet there are thousands of SWs setting up Ltd cos and as I say, being actively encouraged to so do. Pretty sure most of them are the same kind of roles - basically temp members of a team. I have also had people saying the exact opposite - they can't see why I would be inside IR35. I guess it all depends how risk averse you are and whether you are the kind of person who doesnt worry about this stuff.

[tractor]

If that were true then so would I. The BETs have about as much relevance to your IR35 status as your preference in tea drinking. Or perhaps even less... The BETs are HMRC's latest effort to frighten people into the PAYE system - as in "real busineses deliberately incur debts and non-payment is a good thing". They also ignore established case law, else why, for example, is the right of substitution disregarded?

Case Law hasn't changed, your status is determined by the application of the three key employement tests (D&C, MOO, RoS, as per the original RMC case) to the reality of your engagement and, where there is ambiguity, your contract. If you can prove otherwise I would be most interested to learn exactly how.

Yes, HMRC offer a review service. The answer will take weeks and will be "You are caught". Really useful.... not. And usingit, incidentally, will almost certainly invalidate your PEI insurance.

FTFY

[socialworker]

Gemma now I have a little more time than earlier your very detailed response deserves more comment.

As mentioned by previous posters, the BETs are guidance only, with the aim to help contractors self-assess their status. Due to the nature of so-called guidance, the majority of contractors will fall within the medium-high risk category anyway.

I know they are guidance but it is really odd if they are no guide to how an actual investigation would pan out. It sounds as if they are actually no guide at all. Still odd things abound in government these days.

"Right of Substitution, Control and MOO are the 3 main tests of IR35 status, but proving 1 of 3 to get outside IR35 is definately NOT a rule I would advise anybody to follow. Right of substitution is one of the most important tests and even though you are a social worker, you should still have this right. I hear you screaming "but I have to adhere to numerous security checks etc etc etc I can't substitute". However, as a limited company, your COMPANY is being contracted out to complete a service. YOU should not have to complete the services, your company however, does. What I'm saying is that the test is asking IF, in the hypothetical situation that you had somebody else with the relevant skills, experience and qualification and they could go through all the security checks applicable without harming the terms of the contract, that you would be able to send them in your place and your company would be responsible for them and their pay.

Actually substitution is not as difficult for social work as you might think, people often take over other SWs cases when one is on holiday or sick. Most team managers would rather howver do without you for a few days than risk taking on n unknown person even with the relevant documents. The difficulty would be showing I could ever do it in reality. I have thought about getting together with others to provide subs for each others' ltds but as most good contract SWs are in constant full time work that would be difficult to work in practice for that reason. A recent CRB and HSCC registration are all that is really needed.

"Although mutuality of obligation is a key determining factor surrounding IR35, it is worth noting that HMRC’s lack of understanding and misinterpretation makes it difficult to mount a successful defence on this test alone. Currently, much focus is being placed on non-mutuality of obligations during the contractual term and, as such, it is important that a contractor has the right to walk away from a contract early, if they so choose. i.e you should ensure you have a specific end date and/or the right to terminate the contract (with a notice period no longer than 30 days)"

That should not be too difficult to show.

"The test asking about previous employment with your client is asking you to confirm if you were permanently employed by your end client before you began contracting to them. There was a case with a bank back in the day where a number of employees of the client agreed to leave the company and return the very next day doing the same work, in the same place with the same people but under a limited company. This is what HMRC want to ensure isn't happening so if you were working for the client via an umbrella before, this is not applicable to you."

Thanks I can see that now.

"I would not advise using HMRC's contract review service. Although they state that the review service and compliance team are completely separate; I work with ex-Revenue inspectors and based on their opinions, I am incredibly sceptical that nothing is "accidentally" passed between departments and those that get a review won't be looked at."

I wonder what effect it would happen if you were to use the service for a contract and then operate in the opposite way to where the review pointed. Might actually be harder on you because you were seen as reckless?

"As a whole, you can use the BETs as a rough guide but they are in no way in depth enough for you to accurately assess your status. If you are a public sector worker, you will need to use the test anyway."

There is no sign of that yet where I work, most of us are under 220 per day ( I know sad isn't it) and initial contracts are mostly 3 months though often extended. But no doubt that day may come.


But you will need to seek professional advice, even with the BETs, as if you don't fully understand what HMRC are asking, such as with the right of substitution (as many contractors don't) then you can easily put your foot in it and get some professional representation to defend your case.



Hope this helps you.

I have a contract from the agency that is obviously designed to help you be outside. But to me it is rather weak. If I were to decide to treat myself as outside then I would definitely get a professional review and insurance. False economy not to.

[Gemma at Qdos]

"I know they are guidance but it is really odd if they are no guide to how an actual investigation would pan out. It sounds as if they are actually no guide at all. Still odd things abound in government these days."

Unfortunately that's HMRC for you! They intended to simplify the legislation with guidance, and to an extent it does provide contractors with an idea on the tests but the legislation has so many aspects that it doesn't help a whole lot.

"Actually substitution is not as difficult for social work as you might think, people often take over other SWs cases when one is on holiday or sick. Most team managers would rather howver do without you for a few days than risk taking on n unknown person even with the relevant documents. The difficulty would be showing I could ever do it in reality. I have thought about getting together with others to provide subs for each others' ltds but as most good contract SWs are in constant full time work that would be difficult to work in practice for that reason. A recent CRB and HSCC registration are all that is really needed."

The best way to prove your right is obviously to exercise it. Most contractors, and yourself probably the same, are unlikely ever to need to. With that, the best thing is to have a decent clause in your contract (just mentioning it is not necessarily enough) and confirmation from the client. There are documents such as 'confirmation of arrangements' documents which are not legally binding but are a way to get written confirmation from your client about your real working practices which are more important than your contract. You can't make your client sign it but if they will (and it is best to check it has been answered favorably otherwise it's not going to help at all), then it is a good piece of written defence about your working practices.

"I wonder what effect it would happen if you were to use the service for a contract and then operate in the opposite way to where the review pointed. Might actually be harder on you because you were seen as reckless?"

I'm not sure I know what you mean by this comment. What would be the point of using a review service and not taking the advice given from it....perhaps I've misunderstood you though.

I have a contract from the agency that is obviously designed to help you be outside. But to me it is rather weak. If I were to decide to treat myself as outside then I would definitely get a professional review and insurance. False economy not to.

That is the way to go. There are policies that are inexpensive for most contractors and given the implications of being caught, it is not worth the risk. Don't forget your working practices, it's those that you need to be careful of on a daily basis.

[mudskipper]

It would be an interesting experiment if someone who intended to work through an umbrella anyway but thought their contract was outside IR35 could try the HMRC review service. Any volunteers?