RBS, contractors and IR35

[saptastic]

Interesting article and nice to see a considered approach.........

Royal Bank of Scotland initiates ‘pro-contractor’ IR35 reform policy

[BrilloPad]

This is fantastic news!

[BoredBloke]

Pretty good from RBS. They want us outside, we want to be outside, so surely there is that common ground to work with.

[saptastic]

Pretty good from RBS. They want us outside, we want to be outside, so surely there is that common ground to work with.

Well agreed. Its like lets find a way to show you are outside of Ir35. So it is just having a client who is prepared to put in a bit of work to show this and by reviewing the practices will be able to highlight on an individual basis. IR35 hasnt actually changed - just who is responsible so in theory it just needs the client/agency to buy in. Rather than a lazy blanket application.

[WordIsBond]

'Vary your hours'? Hard to see how that's significant. I guess the argument would be if you vary your own hours you are showing your hours aren't under SDC? At best, a small pointer to being outside but I suppose it could make a difference in a close-run case.

[webberg]

I think that there is an assumption here that is unevidenced in many ways.

Does RBS want people to be outside IR35? Where is the evidence for that?

What RBS will want is the right answer that balances risk and reward. That will involve discussion with contractors, agencies, recruiters, payroll, tax functions in the bank, etc.

(I used to work in the latter and at that time those with the power of decision on tax matters were conservative. If there is a high risk of financial or reputational damage, then regardless of the claimed "wants" of bank or contractor, you will get the result that is lowest risk - to the bank.

The IR35 rules never have and should never be used to achieve subjective results. They are meant to be objective but have been perverted by all sides in order to achieve a goal. In the past this was relatively easy because a lot of emphasis was put upon the contracts and little enquiry was made into the work actually being done.

I fear that those days are over and HMRC is armed with better information, the backing of Treasury and importantly a means to collect tax that may be due from the fee payer, leaving that fee payer to seek recompense from contractors/end clients.

My view therefore is that contractors and end clients need to undergo a change of thought process.

This is no longer about what each party wants. This is now about what the job/role is, how it's done, under what conditions.

The contract will remain important but is no longer the sole determining factor with an HMRC who will have more time to investigate.

All parties now need to consider the job and the way it is done. We have already seen ways in which this can be achieved outside the traditional contractor/end client model. More will emerge, some effective, some not.

However the determining factor is NOT what the contract/end client think is "best" for them, but what do the facts say.

[WordIsBond]

However the determining factor is NOT what the contract/end client think is "best" for them, but what do the facts say.

Entirely true. But perhaps what you are discounting here is that if the contractor and the end client are agreed on what is "best" for them, they can often adjust the facts of the situation.

IR35 includes a lot of area between 'certainly inside' and 'certainly outside.' It would not be hard, if both contractor and client are agreed, to make some relatively easy changes to move from 'likely outside' or 'toss-up' to 'certainly outside', from 'toss-up' or even in some cases 'likely inside' to 'likely outside,' and maybe even in some cases from 'certainly inside' to 'likely outside'.

It may be as simple as accepting better substitution wording in the contract. In the past, there was no real reason for clients to concede anything on that point in contract negotiations. Now, if they want the contractor to be outside, potentially saving them significantly on contractor costs, they may be willing to go along and allow a good substitution clause. All of a sudden a situation that was likely inside is ironclad outside, simply because the client now has an incentive to accept proper substitution. It's not that the desire for the engagement to be outside makes it outside, but that the desire can result in the facts changing, which then puts it outside.

[webberg]

Entirely true. But perhaps what you are discounting here is that if the contractor and the end client are agreed on what is "best" for them, they can often adjust the facts of the situation.

IR35 includes a lot of area between 'certainly inside' and 'certainly outside.' It would not be hard, if both contractor and client are agreed, to make some relatively easy changes to move from 'likely outside' or 'toss-up' to 'certainly outside', from 'toss-up' or even in some cases 'likely inside' to 'likely outside,' and maybe even in some cases from 'certainly inside' to 'likely outside'.

It may be as simple as accepting better substitution wording in the contract. In the past, there was no real reason for clients to concede anything on that point in contract negotiations. Now, if they want the contractor to be outside, potentially saving them significantly on contractor costs, they may be willing to go along and allow a good substitution clause. All of a sudden a situation that was likely inside is ironclad outside, simply because the client now has an incentive to accept proper substitution. It's not that the desire for the engagement to be outside makes it outside, but that the desire can result in the facts changing, which then puts it outside.

I would have to disagree.

The facts are the facts.

A Judge in Tribunal would start with "what is the job and how is it done". Once he/she is satisfied that they understand that, they would invent/impute/imagine what sort of contract would be needed to achieve that. Read the cases on IR35, especially Ackroyd and Kelly where this was the path followed.

I would have a real concern that a change to - for example - a substitution clause which was engineered for tax purposes and had no real power, ability to be used effectively (or at all) and was not - in fact - exercised, would be given such little weight in a decision as to be useless.

The point I am making here is that IR35 decisions should be based on the facts of the job as viewed objectively.

Inserting legal clauses that are not effective or recognised, processes that are not followed or ignoring degrees of supervision, direction and control that exist "on the ground" but are not in the contract, is dangerous territory.

We are at the beginning of a decade long HMRC campaign here which has a goal of making 90% of contractors fit within IR35. HMRC has created a situation in which they have tremendous power in legislation, have pushed the tax collection process onto the fee payer and are playing a long game in Tribunal. They have freed resources so that they can investigate and bring more and more cases.

The thinking in the contractor market to date which is broadly "if the contract is right, then I am outside IR35", MUST change. The contract needs to reflect the job/role/real events because that is what is determinative of status.

[jamesbrown]

I would have to disagree.

The facts are the facts.

A Judge in Tribunal would start with "what is the job and how is it done". Once he/she is satisfied that they understand that, they would invent/impute/imagine what sort of contract would be needed to achieve that. Read the cases on IR35, especially Ackroyd and Kelly where this was the path followed.

I would have a real concern that a change to - for example - a substitution clause which was engineered for tax purposes and had no real power, ability to be used effectively (or at all) and was not - in fact - exercised, would be given such little weight in a decision as to be useless.

The point I am making here is that IR35 decisions should be based on the facts of the job as viewed objectively.

Inserting legal clauses that are not effective or recognised, processes that are not followed or ignoring degrees of supervision, direction and control that exist "on the ground" but are not in the contract, is dangerous territory.

We are at the beginning of a decade long HMRC campaign here which has a goal of making 90% of contractors fit within IR35. HMRC has created a situation in which they have tremendous power in legislation, have pushed the tax collection process onto the fee payer and are playing a long game in Tribunal. They have freed resources so that they can investigate and bring more and more cases.

The thinking in the contractor market to date which is broadly "if the contract is right, then I am outside IR35", MUST change. The contract needs to reflect the job/role/real events because that is what is determinative of status.

Sure, it's based on working practices and a hypothetical contract is formed that reflects those and a judgement is made, in the round, about whether that hypothetical contract looks like a contract of employment. I guess everyone with a cursory understanding of IR35 knows that.

The issue is not the facts, per se, but how they are weighed, in order to reach a judgement about status "in the round". For example, there are different interpretations of "irreducible minimum" and "sufficient degree" w/r to control. It has never been a tick-box exercise, which is why CEST-like tools can never fully work. That a judgement can be made differently by different experts is evidence that IR35 is inherently not an exercise in objectivity, but a structured exercise in subjectivity.

[WordIsBond]

I would have a real concern that a change to - for example - a substitution clause which was engineered for tax purposes and had no real power, ability to be used effectively (or at all) and was not - in fact - exercised, would be given such little weight in a decision as to be useless.

I did not suggest such a clause. It would have to be a clause that both parties acknowledge to be real.

Case law is quite clear that such a clause is not compatible with employment, if it is real, whether it is used or not. And such a clause would give an 'outside' result in CEST which would make a challenge very unlikely to succeed or, indeed, happen.

If RBS wants their contractors to be outside IR35, chances are they have two choices -- accept some risk, or change some things. If they choose the latter and agree to cede a real, reasonably unfettered right of substitution, they will have accomplished their purpose, and will be able to get good contractors at a lower rate than people like HSBC will have to pay for the same quality.

If some clients take this approach and others take the HSBC approach, there will no longer be a 'market rate', there will be two rates. Those who want to maintain a high level of control, and don't want to give a real right to substitution, will pay more for the privilege, and those who are willing to work as if their contractors really are businesses will be able to pay less.