Reply to: Setting up LTD and Caught By IR35

[TheMonkey]

I have a stuffed monkey called Nigel (I am 100% serious) that substitutes for me to cover the contractual obligations, i.e it lives in the office and can talk for hours to agents about rubbish.

I have a contract (finished one) somewhere that states Nigel Monkey as a written substitute.

Clients are usually ok about Nigel substituting as he works for monkey nuts.

Now I've given that away, all the agents will read it and I'll have to get another stuffed substitute.

If the HMRC get me, I'll say Nigel left the country after it turned out that he got the wrong banana boat to England.

[autodial]

To be fair, SJD do understand IR35 requirements very well, but this looks like a case where professional advisers and negotiators like Bauer and Cotterell would have helped. Use them next time.

Meanwhile, if you have a moderately unfettered right of substitution OR some discretion over where and how to do the work OR no right to money if there's no work and vice versa, any half decent representative will put you outside IR35 if challenged. So learn the rules and stop paying tax you don't have to.

Do not believe agencies - most of them don't even understand their own marketplace, much less the finer details of contract law. If they are using a contract that is intended to put you inside IR35, it's becuase their contract with the end-client has promised no risk of you claiming employment rights and this is how they think they will achieve it (but they've never heard od Dacas/Muscat so they're wrong!).

And finally - next time, the contract is between your limited company (or your umbrella) and the agency. You personally do not need to appear on any contractual statements: that is why you are inside IR35 for this contract, it has been made into a contract of service (i.e. you personally are doing the work) not a contract for services. Big mistake, don't do it again.

Iagree, I use Bauer & Cotrell everytime I get a contrct as they always check out the IR35 pitfalls, and they tell you of any worrysome commercial areas and on most occasions have negotiated comercial clauses for me as well

[malvolio]

Also, I have my own contract for services which I got drafted by a business lawyer at considerable cost to my company.

I was wondering if anyone had been brave enough to try the substitution of another contractor mid contract, allowing them to get on with the next one ?

a) Should have joined the PCG then: they do them for free...

b) Yes, I've seen it done. Easy for non-management roles, where the client is only really interested in getting the work done, not who's doing it.

[oraclesmith]

Personally I'd slip in the clause but only use it if I need to - eg. if I was sick or had an accident or some other disaster. My argument is that I'd need to sub-contract if I substituted and that would mean I'd be an agency customer and therefore will need to pay full client price (ie. with agency fee added on) for a contractor with equivalent skills. Which in turn would mean I'd lose maybe £50 to £100 a day. The fact that this is possible means I would satisfy another part of IR35 which is about the possibility of making a loss on a contract.

Also, I have my own contract for services which I got drafted by a business lawyer at considerable cost to my company.

I was wondering if anyone had been brave enough to try the substitution of another contractor mid contract, allowing them to get on with the next one ?

[Ardesco]

One reason why the agents might not like substitution clauses for example, is that they/the client interviewed one person for the contract and they don't want someone else turning up.

You could always get the to write in that you are only allowed to substitute in somebody who works for your LTD Co. That way you can show that you don't have any employee's and that should keep everybody happy.

I don;t know if this is feasible or how it would affect your IR35 status though so it's probably something to ask a pro about

[expat]

One reason why the agents might not like substitution clauses for example, is that they/the client interviewed one person for the contract and they don't want someone else turning up.

That's the usual reality. The client doesn't want a B2B contract to get the work done, they interview you and they want you.

Instead of trying to pretend otherwise, why not just do it? Bill the rate for your work, pay the income tax on your income. Then stop worrying about the tax you wish wasn't taxed, and get on with your life.

If you insist on thinking that you shouldn't have to pay NICs on all your income, do as one poster suggested: bill accordingly. The agency can have an inside-IR35 contract if they want, but it costs more than an outside-IR35 contract.

[Charl1e brown74]

To be fair, SJD do understand IR35 requirements very well, but this looks like a case where professional advisers and negotiators like Bauer and Cotterell would have helped. Use them next time.

Meanwhile, if you have a moderately unfettered right of substitution OR some discretion over where and how to do the work OR no right to money if there's no work and vice versa, any half decent representative will put you outside IR35 if challenged. So learn the rules and stop paying tax you don't have to.

Do not believe agencies - most of them don't even understand their own marketplace, much less the finer details of contract law. If they are using a contract that is intended to put you inside IR35, it's becuase their contract with the end-client has promised no risk of you claiming employment rights and this is how they think they will achieve it (but they've never heard od Dacas/Muscat so they're wrong!).

And finally - next time, the contract is between your limited company (or your umbrella) and the agency. You personally do not need to appear on any contractual statements: that is why you are inside IR35 for this contract, it has been made into a contract of service (i.e. you personally are doing the work) not a contract for services. Big mistake, don't do it again.

Malvolio you are correct, the agent and other staff are not clued up on details like contract law and even there own industry!! How frustrating!

The agency are called brightred and are based in Gerard’s cross, they are an independent (so not part of a large group) which was one of the reasons I went with them. You live and learn. The next step is to get educated ASAP on the dos and don’ts of contract negotiation so as I am ready for the next lot of recruitment consultants.

Going to contact SJD initially and see what advice they provide on accounting options. As many people say on this board the advice is only worth what you pay for it. Thanks for the advice.

[oraclesmith]

One reason why the agents might not like substitution clauses for example, is that they/the client interviewed one person for the contract and they don't want someone else turning up. Arguably, this may not necessarily be a bad thing because it's a B2B contract and it's down to the limited company contractor to ensure the job is done as per the contract. But I can understand some agents nervousness at substitution. However, if the contractor limited has to pay more tax, then this should be reflected in the rate as they will have to make up the potential loss due to additional tax.

Has anyone known this to happen ? ie. a small limited winning a contract on the strength of the Director's ability and then placing an equally skilled subbie or a fellow Director in the contract from day one or at a later date.

[malvolio]

To be fair, SJD do understand IR35 requirements very well, but this looks like a case where professional advisers and negotiators like Bauer and Cotterell would have helped. Use them next time.

Meanwhile, if you have a moderately unfettered right of substitution OR some discretion over where and how to do the work OR no right to money if there's no work and vice versa, any half decent representative will put you outside IR35 if challenged. So learn the rules and stop paying tax you don't have to.

Do not believe agencies - most of them don't even understand their own marketplace, much less the finer details of contract law. If they are using a contract that is intended to put you inside IR35, it's becuase their contract with the end-client has promised no risk of you claiming employment rights and this is how they think they will achieve it (but they've never heard od Dacas/Muscat so they're wrong!).

And finally - next time, the contract is between your limited company (or your umbrella) and the agency. You personally do not need to appear on any contractual statements: that is why you are inside IR35 for this contract, it has been made into a contract of service (i.e. you personally are doing the work) not a contract for services. Big mistake, don't do it again.

[Cowboy Bob]

Name and shame the agency.

Just a guess - sounds like Xansa...

[Pondlife]

The agency were very negetive about 'IR35 friendly' contracts and I was even told by the accountant 'prossessional' at the agency that there is no such thing as an IR35 frendly contract!!!

Name and shame the agency.

[Charl1e brown74]

Why didn't you try and get the contract outside of IR35?

I did try, SJD reviwed the contract and I put the following points to the agent:

Services - perform personally OR substitutes - there should be ability for
you to provide substitute workers at your complete discretion. You are
named personally in the schedule and there is no substitution right.

Provision of equipment and facilities - it would be helpful if you are
required to provide equipment.

Responsibility for defective work - you should not be paid for defective
work and the contract should make this clear

Deciding methods of undertaking work - you should be in complete control of
the methods of work, again the contract should make this clear. Your
contract clauses at 7.1 especially 7.1.6 put control with the client.

Ability to take concurrent contracts - you should have an explicit right to
work for other end users at the same time during this contract.

Provision of insurance - it would be helpful if you were required to take up
business insurances.

Effective immediate termination - there should be no obligation for either
party to provide work. Clause 11.2.4 could put you in the position of
facing effective immediate termination. However as the other clauses
regarding termination would then all be defunct, it is likely the contract
would be held to effectively give you a right to notice.


The agency wouldn't budge, it was a classic case of take it or leave it. I took it. Needed the money! There reasonong was that they have an agreement with the end client and my 'contract changes' would have broken that agreement.

The agency were very negetive about 'IR35 friendly' contracts and I was even told by the accountant 'prossessional' at the agency that there is no such thing as an IR35 frendly contract!!! Long conversation was had but being new to contracting I didn't have all the answers to her direct and agressive questions.

I hate agencys

[dmini]

Create a username on the SJD website - gives you access to lots of useful info - including their spreadsheet they use for all of the contractors they do accounts for. Its free, and its brilliant. Takes a bit of getting used to, but is a lot easier than many tools out there. It takes account of VAT registration, including flat rate, IR35 and non-IR35 contracts, even both in the same month, deemed salary calculations etc.
PAYE calcs on it are not so good, but HMRCs Employers CD ROM (you have to register with them as an employer) does all the calculations for you - I just have a tiny spreadsheet I use to do the end calc - Gross-PAYE-NIC, as a basic record. I also have another worksheet which will do a basic gross (what company can afford) to HMRC definition (minus employers NICs). Feed the end result into the employers CDRom calcs, and hey presto, its done! I didn't realise it was there until an accountant I was doing some work for told me!

There is no need to buy software, it is all out there, free, if you look - and legal!

[Diestl]

Hi,

Can anybody please`help with some information I am after.

I have 3 month rolling contract which is caught by IR35 (had SJD accountancy check it out for me)....

Why didn't you try and get the contract outside of IR35?

[oraclesmith]

Get some software too. Although I get my accountant to run payrolls for me and tell me what tax to pay, I enter all my transations in Sage Instant Accounts as well. If you're thinking of skipping the accountant, then you will have to do your own PAYE and Corporation Tax and self assessment returns as well. You may benefit from buying the payroll module as well and learn how to use it. If you go this way, get support too (for Sage it's Sagecover) because this gives you access to lots of accountancy/IT advice on how to run the systems.

Remember you won't necessarily avoid a PAYE compliance investigation, even though you have declared yourself inside IR35, because you could be getting the figures wrong or paying yourself some cash in hand. You will have to learn how to handle the HMRC yourself. I use a local largish and well-established accountancy firm because for the £1K a year or more it costs in fees, I get access to a lot of advice and they know how to deal with the HMRC because they're doing it for hundreds of other small and medium sized businesses every day of the year. Even though you may be spending on them what you save from ditching the umbrella, in my humble opinion you get a better deal.

Good luck.