RBS, contractors and IR35

[webberg]

The past is important because in the 19 years since IR35 arrived, there has not been a case where a link is established between tax and employment law.

In the individual cases seen above, clearly this has played upon the decisions made by HMRC in whether to advance a case or not. Where the limited impact of an Employment Tribunal has been the difference (potentially) between an inside IR35 or an outside IR35 decision, than HMRC has chosen not to run the tax argument.

That is perhaps because the tax argument is more subjective that the employment law one? I can't say for certain because I'm not an employment lawyer.

The future is important because being outside IR35 will become rarer than it is now and perhaps it is the case that a definite "outside" decision would also rule out any possibility of an employment being established for employment law purposes.

[JohntheBike]

For both employment law and tax law, the question of 'employee or not' is looked at 'in the round.' There is no statutory definition of self-employment/employment.

You are asking us in another thread to look forward and here you are insisting on looking back. Looking back, it was the contractor or HMRC that determined the subjective (certainly not objective) question as to whether IR35 applied. Looking forward, the new dynamic is that it is the engager.

In the English common law system, where 'equity' is a compelling principle, it will certainly be argued that it is inequitable for an engager to deem that someone is an employee on tax to their detriment and not an employee on employment rights (again to their detriment, and to the benefit of the engager).

This 'reform' brings an important new consideration into that 'in the round' assessment. Always before, in employment cases, engagers could say, 'We didn't hire him as an employee, we didn't pay him like an employee, we didn't treat him like an employee, we never considered him an employee in any way.' Now, legal counsel for the contractor can say, 'Then why did you decide that he had to be taxed like an employee?' It's a new aspect to that 'in the round' assessment.


I am not in the least suggesting that a tax definition has any impact on employment law. I am suggesting that engager/employer actions towards the worker DO have power in employment law, and that there's a new engager/employer action which has never been there over the last 19 years. Any engager which says, 'You are to be treated as an employee for tax,' is saying that your working conditions are more in line with employment than self-employment. That can't be a comfortable position for them to be in if they don't want to be dragged into an employment tribunal.

agreed absolutely!

I guess it will come down to pure economics. What would be the possible financial penalty for either decision. A sensible client would weigh this up and chose the lowest and least likely penalty.

[WordIsBond]

The future is important because being outside IR35 will become rarer than it is now and perhaps it is the case that a definite "outside" decision would also rule out any possibility of an employment being established for employment law purposes.

I would certainly say that an 'outside' decision by the client will make it less likely that a claim to employment would succeed.

What I've been arguing is the converse of that, that an 'inside' decision will provide another argument which could be used against an engager in an employment tribunal.

I'd say the Winchester case is one mild example of what's coming if engagers dump everyone inside IR35.

[JohntheBike]

I would certainly say that an 'outside' decision by the client will make it less likely that a claim to employment would succeed.

What I've been arguing is the converse of that, that an 'inside' decision will provide another argument which could be used against an engager in an employment tribunal.

I'd say the Winchester case is one mild example of what's coming if engagers dump everyone inside IR35.

agreed again

[Maslins]

No specific technical knowledge on this, but I agree with WiB.

Corporates taking lots of contractors outside IR35 is a risk of HMRC arguing wrong treatment, potential big liability for corporate.

Corporates taking lots of contractors inside IR35 is a risk of contractors taking up the argument that if they're an employee for tax law, then they should get employment rights. So this really isn't a "safe" option for the corporate either. It's also more expensive for them/the contractor from a tax/NIC perspective. I therefore think lots of inside IR35 contractors won't be the outcome.

It'll either be no/hardly any contractors at all (go PAYE or sod off), or the corporates working closely with QDOS and equivalents to ensure they're watertight with fairly widespread outside IR35 treatment. Neither will particularly appeal to the corporates, but I anticipate neither will them taking on big consultancies instead of individuals.

I'm optimistic that putting their neck on the line a bit with lots of outside IR35 contractors (albeit fewer than before as no doubt some of the basic "BAU" contractors will be taken onto the payroll) will be their best option, even if they consider it best of a bad bunch.

[WordIsBond]

agreed absolutely!

I guess it will come down to pure economics. What would be the possible financial penalty for either decision. A sensible client would weigh this up and chose the lowest and least likely penalty.

A sensible client has multiple options, and the possible size of the penalty is unlikely to be determinative.

They can get rid of all contractors and figure out how to staff their projects another way. They can adjust working practices and project management to ensure their contractors are outside. They can use consultancies. They aren't going to be as interested in the size of the penalties as they are the risk of there being penalties. They don't want either the hassle or the bad publicity of losing either kind of case, even if the penalties aren't significant. Most large clients will be looking to minimise the risk of that.

[JohntheBike]

No specific technical knowledge on this, but I agree with WiB.

Corporates taking lots of contractors outside IR35 is a risk of HMRC arguing wrong treatment, potential big liability for corporate.

Corporates taking lots of contractors inside IR35 is a risk of contractors taking up the argument that if they're an employee for tax law, then they should get employment rights. So this really isn't a "safe" option for the corporate either. It's also more expensive for them/the contractor from a tax/NIC perspective. I therefore think lots of inside IR35 contractors won't be the outcome.

It'll either be no/hardly any contractors at all (go PAYE or sod off), or the corporates working closely with QDOS and equivalents to ensure they're watertight with fairly widespread outside IR35 treatment. Neither will particularly appeal to the corporates, but I anticipate neither will them taking on big consultancies instead of individuals.

I'm optimistic that putting their neck on the line a bit with lots of outside IR35 contractors (albeit fewer than before as no doubt some of the basic "BAU" contractors will be taken onto the payroll) will be their best option, even if they consider it best of a bad bunch.

agreed

[JohntheBike]

A sensible client has multiple options, and the possible size of the penalty is unlikely to be determinative.

They can get rid of all contractors and figure out how to staff their projects another way. They can adjust working practices and project management to ensure their contractors are outside. They can use consultancies. They aren't going to be as interested in the size of the penalties as they are the risk of there being penalties. They don't want either the hassle or the bad publicity of losing either kind of case, even if the penalties aren't significant. Most large clients will be looking to minimise the risk of that.

yes, OK, I accept your points.

[SussexSeagull]

Plus it is all well a good the city having a blanket policy of everyone being in IR35 when a lot of the contractors either live in London or commute into the suburbs so have limited expenses. Clients that have to attract contractors from further away who have to stay away in the week are going to struggle unless they start offering expenses.

[JohntheBike]

Plus it is all well a good the city having a blanket policy of everyone being in IR35 when a lot of the contractors either live in London or commute into the suburbs so have limited expenses. Clients that have to attract contractors from further away who have to stay away in the week are going to struggle unless they start offering expenses.

yes, another good point.