Reply to: Landed a 3-month contract - IR35 problem. How much £££ would I lose?

[ForBajor]

An update - and thank you everyone for the help this time round.

I missed an email from my advisor at 4pm yesterday - which changes things significantly. The additional information provided by the agency does make a significant difference, and there is a positive outcome possible. They requested an introduction to the agency so they can discuss contract changes to shore things up. This is all underway now.

This is great news. My advisor has also called me to run through the possibilities, and risks, and have been exceptionally helpful.

Those who pointed out potential complicaitons relating to the public sector were absolutely spot-on. My advisor has filled me in on some crucial history and I'm in no doubts as to why they are being cautious and methodical on this one. No doubt at all. This is a real education for me. I don't think I'll need a second opinion on this - since the first one is more than good enough to get this issue resolved. A LOT can happen in a few hours.

[ContrataxLtd]

The advisor has said that based on the information provided the contract was inside IR35.

....

Now I'm wondering if it's worth getting a 2nd opinion on this contract, because if the difference between inside and outside is literally thousands (and it is) then throwing another £200 at this is probably a good idea - and I think I need to do this actually.

Hi ForBajor

Just out of interest, who did you have the contract reviewed by first time round?

You definitely need a chat with your accountant too as there could be some good ways to actually mitigate the tax down to a manageable level whilst still complying with the IR35 rules.

Martin
Contratax Ltd

[Contreras]

Now I'm wondering if it's worth getting a 2nd opinion on this contract, because if the difference between inside and outside is literally thousands (and it is) then throwing another £200 at this is probably a good idea - and I think I need to do this actually.

Before you do that, ask your accountant what the IR35 tax/NI hit would actually be on a 3 month contract at that rate, given all possible mitigations he/she can think of.

For example, as you previously said "I have savings to last 4 months out of work" you could make sufficient contributions to a pension to reduce the liability to nil. In fact reduce it to anything less than the cost of a contract review and it becomes a moot point.

[TheCyclingProgrammer]

What were the reasons why the contract was deemed to be inside IR35?

If the working practices would put you outside IR35 and its just a bad contract that doesn't reflect the reality, you could take the chance and hope you can fight your defence based on working practices alone.

Or you could negotiate to get the contract improved.

As TF says, if what would ultimately put you inside IR35 is the working practices then having the contract changed is likely pointless.

[ForBajor]

Can your advisor advise what changes they would recommend to make the contract IR35-friendly?

Anyway, as per my earlier post, if the wording doesn't reflect the reality then it's a moot point one way or the other.

Well basically the agency provided some example PM description documents from the client to give an idea of what the role would be like - which I supplied along with the contract. In addition I supplied the job advert which clearly stated that the requirement was for a specific project - plus another email from the agent direct from the client stating what the project was - and how they required someone to service that project. I was recruited because I have the specialist domain knowledge necessary to execute this project effectively - 8 years managing projects of this kind, in fact.

The advisor has said that based on the information provided the contract was inside IR35.

In the scenario whereby the example job specs were not submitted for review along with the IR35 contract, I'm not sure if we might be looking at a different decision. The agent is pretty furious about it - as they work with one of the big banks and have issued countless contracts - and if their contract was inside IR35 they would be in big trouble. I know this is just the agent talking but they are really baffled.

Now I'm wondering if it's worth getting a 2nd opinion on this contract, because if the difference between inside and outside is literally thousands (and it is) then throwing another £200 at this is probably a good idea - and I think I need to do this actually.**

**EDIT: No need - I missed an email at 4pm from my advisor!!!! See latest post.

I'm going to go ahead with the contract as it's still worth doing on a week's notice, even at a lower effective day rate. But in paralell I'm going to get someone else to look at this contract because all the dots are not joining up.

[TheFaQQer]

Well despite an explanation from the agency, and the contract schedule draft - my advisor still says it's inside IR35. Darn it.

The agency will carry on disputing this. But a specialist has looked at this whole situation and said don't take the risk of claiming it's outside of IR35.

This is annoying...

Can your advisor advise what changes they would recommend to make the contract IR35-friendly?

Anyway, as per my earlier post, if the wording doesn't reflect the reality then it's a moot point one way or the other.

[ForBajor]

Well despite an explanation from the agency, and the contract schedule draft - my advisor still says it's inside IR35. Darn it.

The agency will carry on disputing this. But a specialist has looked at this whole situation and said don't take the risk of claiming it's outside of IR35.

This is annoying...

[jamesbrown]

Yeah - good learning experience all round, and money in the bank for 3 months provided things go well and I nail it. Plus a good reference. Could be much worse!

The agency have sent me the draft schedule to the contract, and an explanation of the scenario so as to convince my advisor that this is outside IR35. I've passed this on and look forward to seeing if this changes things. Either way I'm going to go for it, and as you say, live and learn - but with money in the bank. First contract and all that, and I'd have only been out of work for 2 weeks after the The Big Switch. That aint bad.

Yep, good luck, and keep an eye out - securing the second one is sometimes harder than the first

[ForBajor]

Nice calculation, but it assumes 0 income from other sources for the rest 9 months of the year...

Your best bet is to work this contract out, swallow the additional tax burden and let it serve as a reminder for the rest of your career. If there is a potential for extension negotiate for higher rate to offset the tax burden, or walk to another gig.

Yeah - good learning experience all round, and money in the bank for 3 months provided things go well and I nail it. Plus a good reference. Could be much worse!

The agency have sent me the draft schedule to the contract, and an explanation of the scenario so as to convince my advisor that this is outside IR35. I've passed this on and look forward to seeing if this changes things. Either way I'm going to go for it, and as you say, live and learn - but with money in the bank. First contract and all that, and I'd have only been out of work for 2 weeks after the The Big Switch. That aint bad.

[Contreras]

Nice calculation, but it assumes 0 income from other sources for the rest 9 months of the year...

Or all other contracts being outside IR35.

They said it's central government so good chance of hitting the issues as described in the Public Sector sticky. Specifically of being told to provide a letter from Hector confirming their PAYE arrangements are in order.

Fair enough, I missed that point. But the OP can still go a fair way in mitigating the tax liabilty as hinted at by the accountant responses in this thread.

[smatty]

- Ignore the IR35 review and treat it as outside. Will Hector bother?

They said it's central government so good chance of hitting the issues as described in the Public Sector sticky. Specifically of being told to provide a letter from Hector confirming their PAYE arrangements are in order.

[sal]

Not quite that much, I'll bet.

3 months @ £300/day, say £18k after days off.

Deduct allowable expenses, say £500/mo., --> £16.5k

If IR35 caught then 95% to be taxed as salary --> £15.7k

£10k personal allowance --> £5.7k

Stuff £1k/mo. into a pension --> leaves £2,700 subject to tax/NI.

Options:
- Ignore the IR35 review and treat it as outside. Will Hector bother?
- Negotiate a better rate with the agency now the contract is reviewed.
- Wait on the bench. Being immediately available can mean a better rate.

Better than sitting on the bench? That's up to you.

My main consideration would be whether the contract is likely to extend beyond the 3 months.

Nice calculation, but it assumes 0 income from other sources for the rest 9 months of the year...

Your best bet is to work this contract out, swallow the additional tax burden and let it serve as a reminder for the rest of your career. If there is a potential for extension negotiate for higher rate to offset the tax burden, or walk to another gig.

[jamesbrown]

You can't claim the Employment Allowance on a deemed payment calculation, but you can claim it on an actual salary. All you therefore need to do is pay an actual proper salary through the year of at least £23,000 and you'll get the full £2k.

Employer's NI still needs to be paid as normal otherwise, although it's based on the deemed salary amount. So reduce the deemed amount by pension contributions and travel expenses, and the Employer's NI goes down accordingly.

Right, that's what I thought. Ta

[Clare@InTouch]

The agency have just forwarded me an email to sent to my IR35 legal advisor. This might change things - might not.

I reckon I'm going to go for this and see what my accountant can do. It's better to take this, get a good reference with the client, and move on after 3 months. Sitting on the bench is something I can afford to do - but I could be earning. The location for this contract is ideal (zero travel expenses - I can cycle).

You can claim 20p per mile for cycling

[Clare@InTouch]

Could you remind me how the company's liability (Employer's NI) is handled in a deemed-payment scenario? I assume this doesn't change, only the ability to reduce it disappears. Just curious, as the overall liability (personal/company) is relevant here. Also, the Employment Allowance cannot be claimed against NICs.

You can't claim the Employment Allowance on a deemed payment calculation, but you can claim it on an actual salary. All you therefore need to do is pay an actual proper salary through the year of at least £23,000 and you'll get the full £2k.

Employer's NI still needs to be paid as normal otherwise, although it's based on the deemed salary amount. So reduce the deemed amount by pension contributions and travel expenses, and the Employer's NI goes down accordingly.