Contractual Status and IR35 Change

[nick w]

i all,

I’m in a bit of a tricky situation and would appreciate some clarity.

I currently hold a contract with a consultancy that is explicitly outside IR35. Over the past 2–3 weeks, the consultancy has suggested that the arrangement might shift to inside IR35.

It’s now been confirmed that we are indeed moving inside IR35 and are being asked to move under an umbrella company. The consultancy has informed me that I will need to sign a new contract with the umbrella company in order to be paid for May—despite the fact that I worked the entire month under the existing outside IR35 contract.

According to the contract I signed with the consultancy, any termination by either the supplier or service provider requires four weeks' notice. I have not received any written notice of termination or contract amendment.

I’m therefore challenging this on the basis that:

I have received no formal, written notice of any change to my contract;

I completed the month of May under an existing, valid outside IR35 agreement.

My understanding is that a legally binding contract requires written notice for any material changes, and I’ve seen no such notice.

As a side note, I handed in my resignation on Monday, giving the required four weeks' notice, as I’ll be moving to a permanent role. I would prefer not to move from contractor to umbrella to perm in quick succession. I expect it will mess with my tax?

Thanks,

[Protagoras]

I think that your approach sounds most reasonable (with the presumption that the Consultancy is not 'small').

Noting also that the Consultancy clearly failed to give proper notice and / or issue an updated SDS, the invoice for the work done in May under the B2B contract should be paid in full and the contract terminated.

If the Consultancy wants to change its mind re status, and there's no liability passdown, that's surely their problem to sort out their liabilities.

If the Consultancy wants to play hard ball, recovery of the May B2B invoice amount comes down to your appetite for legal action.

Given termination by you, the Umbrella shouldn't come into play. I'm not in any case sure how an Umbrella Company would pass to a worker, wages for work done while not employed by the Company and which the Umbrella Company didn't invoice.

I reckon that the pragmatic option for the Consultancy would be to pay in full for May and walk away.

[hobnob]

I currently hold a contract with a consultancy that is explicitly outside IR35. Over the past 2–3 weeks, the consultancy has suggested that the arrangement might shift to inside IR35.

It’s now been confirmed that we are indeed moving inside IR35 and are being asked to move under an umbrella company. The consultancy has informed me that I will need to sign a new contract with the umbrella company in order to be paid for May—despite the fact that I worked the entire month under the existing outside IR35 contract.

How long have you had that contract? That might be relevant to what Protagoras said about the SDS. However, I agree that it's dodgy behaviour for them to backdate the change. Out of interest, does the new contract increase your daily rate (to reflect the IR35 change)?

As a side note, I handed in my resignation on Monday, giving the required four weeks' notice, as I’ll be moving to a permanent role. I would prefer not to move from contractor to umbrella to perm in quick succession. I expect it will mess with my tax?

It won't make your tax any more complicated. You'll effectively be moving from one permanent job to another, so you'd get a P45 from the umbrella company to give to the new perm employer. Either way, the salary you get for May will come out of your personal allowance for the year, so it would be more tax efficient to get (some of) May's income as dividends. Another option is to go for salary sacrifice with the umbrella company and dump as much into a pension as you can afford.

[WTFH]

I'm always a bit cynical about the stories that have side notes and vague date ranges, for which I apologise.

Over the past 2–3 weeks, the consultancy has suggested that the arrangement might shift to inside IR35.

Let's imagine that 2-3 weeks means "May", rather than just the last week at the end of May, and was it a suggestion or a statement? Perhaps you thought it was just a general "suggestion", but they were advising you.

The consultancy has informed me that I will need to sign a new contract with the umbrella company in order to be paid for May

...

I have received no formal, written notice of any change to my contract

So, they've informed you that you need to sign a new contract and you say they haven't informed you of that, or are you saying that when they informed you, you didn't consider it to be a formal notice?
When did they first "suggest" the the contract was going to "shift to inside"?
When did they first inform you that you would need to sign a new contract?

I handed in my resignation on Monday, giving the required four weeks' notice

So, it's not one month (i.e. May) but May and June.
And if we're going to be pedantic, contractors terminate their contract, they don't resign.

[nick w]

Thanks for the replies
Here is some more information

How long have you had that contract? That might be relevant to what Protagoras said about the SDS. However, I agree that it's dodgy behaviour for them to backdate the change. Out of interest, does the new contract increase your daily rate (to reflect the IR35 change)?

I had a 12-month renewal agreed back in March, due to start in May.
The inside-IR35 rate is an increase from the previous outside-IR35 rate.

Let's imagine that 2-3 weeks means "May", rather than just the last week at the end of May, and was it a suggestion or a statement? Perhaps you thought it was just a general "suggestion", but they were advising you.

That’s a good question. There was some general suggestion in conversations that we might be moving to an inside-IR35 setup, but it was never confirmed or stated formally. There was no definitive notice like “You are now inside IR35.”

So, they've informed you that you need to sign a new contract and you say they haven't informed you of that, or are you saying that when they informed you, you didn't consider it to be a formal notice?
When did they first "suggest" the the contract was going to "shift to inside"?
When did they first inform you that you would need to sign a new contract?

On 12th May, I was informed that the consultancy was appealing the determination that the engagement was inside IR35.
Over the following weeks, we were told that the appeal decision was still being chased.
Then on 2nd June, we were told that the consultancy would be arranging contracts with the umbrella company.

I asked explicitly this week whether May would be paid outside IR35, and was told no — it would be paid inside.

So, it's not one month (i.e. May) but May and June.
And if we're going to be pedantic, contractors terminate their contract, they don't resign.

Yes — I’ve now served the agreed 4-week contractual notice, as required for both consultant and service provider, to formally terminate the contract.

[SussexSeagull]

Doesn't the end client get a window at the beginning of a contract to decide if it is Inside or Outside?

[northernladuk]

Been awhile since we've had a in outside/inside question but I believe teh status can be changed before payment of first invoice. We've had a number of contractors fall foul of this one.

Here is post from someone in exactly your situation the sums up the situation with links to gov legislation

https://forums.contractoruk.com/ir35...t-started.html

[jamesbrown]

Been awhile since we've had a in outside/inside question but I believe teh status can be changed before payment of first invoice. We've had a number of contractors fall foul of this one.

Here is post from someone in exactly your situation the sums up the situation with links to gov legislation

https://forums.contractoruk.com/ir35...t-started.html

Status can change at any time, it changes with the facts. An SDS must be issued timely, though, which is probably what you mean. Sounds like the OP's question is more about contractual arrangements and how to ensure a contract is honoured.

[Protagoras]

Doesn't the end client get a window at the beginning of a contract to decide if it is Inside or Outside?

Yes, and my understanding is that that's up to payment of the first invoice.

Now that OP has advised that this was a renewal, which commenced in May, I think this then raises the question of whether this was a 'new contract' or an agreement to extend the old contract on the same basis.

If this is a 'new' contract and the May invoice represents the first one under the contract, I think the Consultancy is entitled to issue a revised SDS for the engagement.

[northernladuk]

Status can change at any time, it changes with the facts. An SDS must be issued timely, though, which is probably what you mean. Sounds like the OP's question is more about contractual arrangements and how to ensure a contract is honoured.

I didn't read it like that. I read he's started under outside, within the first payment cycle they've switched to inside. He's asking if it can be honoured because he's not understood they are within their rights to change it. He's hanging on to the outside contract but that's now gone as part of the SDS process, not through contractual clasuses and processes.