Contract to perm

[Hobosapien]

If the contract 'outside' determination is backed by evidence of an independent contract review then there must be circumstances that are defendable should HMRC ever investigate.

Just because you go employee doing exactly the same role delivered in the same manner doesn't mean you would fail IR35 even though now an employee if the working practices would still pass an outside determination test. What would fail is the different employment contract. So by moving from contract to perm there is an indisputable difference.

Also wasn't there mention in the budget relating to future IR35 and private sector where it said HMRC was not going to retrospectively investigate cases, instead concentrating on ensuring clients are ready for the pending IR35 changes to the private sector? i.e. if currently in private sector then less likely to be investigated, if the government can be taken at its word.

[PTP]

Nothing has change but his remuneration method

There should also be a big drop in the value of his remuneratoin (even if you factor in benefits)
There should have been a big premium in the deal when he was a contractor

If there's a big drop and there's not much change in the deliverables, then that ought to prove that it wasn't all disguised salary before and there was actually a premium

[WordIsBond]

I just don't see it that way. We did exactly this back in my permie days:

1. Brought a contractor on for a six month contract on a project we expected to last 9-12 months.
2. Decided he was a good fit with our team and was obviously good at what he did.
3. Figured we'd have a lot of things we could have him do if he stuck around.
4. Made him a really good permie offer.

For the next five months he was doing exactly what he'd been doing before as a contractor. The only thing that was different is he couldn't send in a substitute. The real change took place 5 months after he became an employee -- instead of him leaving, or us offering him a new contract for a different role, we just moved him to a different task. That obviously wouldn't have happened if he were still a contractor.

We could have moved him as soon as he became an employee, of course, but we didn't. He kept on doing the same thing and working in exactly the same way as he did when he was a contractor, for the first five months of his employment.

How does that put his pre-employment contract inside IR35? It doesn't.

You can do the exact same thing as an employee and yet employment status is different because of rights. You don't have the right to send a substitute any more. The employer does have the right to exercise SDC (whether they do or not). You have employment rights that you didn't have before. You have the right to expect the employer to fulfil their obligations and they have the right to expect you to fulfil yours, and those obligations are different than when you were a contractor (MOO). But the actual work you do and the way you do it could end up being exactly the same, and that wouldn't prove you were inside IR35 before.

If you are legitimately working outside IR35 right now and you become an employee, all you have to do is clearly document what has changed. The most obvious thing is Supervision/Direction/Control. If you aren't working under SDC now but you become an employee, you are then under it. Ask them to give you a letter saying one of the reasons they wanted to hire you was to be able to move you from task to task, a right they didn't have when you were a contractor. Sorted.

[Lance]

The details are the key, of which we have absolutely none but if he walked out the door as a contractor PM on x project on Friday and walked back in doing exactly the same but as a permie there has to be a question around his status. Nothing has change but his remuneration method. You'd think if it's an issue one way it surely must the other.

I have to agree with NLUK on this one.

IR35 is to catch those who 'if engaged as an employee, would be taxed as an employee'. That applies here too IMO. Switching from contract to permanent makes no odds.
Unless of course ... either..
1) the working practises are different, or
2) the working practises are the same but as an employee there is still no SDC (quite plausible), a RoS (not a chance) and no MoO (employment contracts make that not really plausible). So down to SDC, but as that has yet to be tested for an employee I'd not bet the house on it.

Risk of investigation is low, as with all IR35 cases, but this is an additional complication.
As with all these things the devil's in the detail, and the evidence.

[northernladuk]

I don't necessarily agree with the above two posters. If it was the other way around (ie you were a permie, then quit and went back as a contractor straight after) it would be a concern..

The details are the key, of which we have absolutely none but if he walked out the door as a contractor PM on x project on Friday and walked back in doing exactly the same but as a permie there has to be a question around his status. Nothing has change but his remuneration method. You'd think if it's an issue one way it surely must the other.

Whether or not HMRC has ever gone after anyone this way round would really dictate the amount of concern.

It can't be risk free as the standard advice is to keep tax insurance going. If he was home free that advice wouldn't be needed.

All that said a pretty minor change in his circumstances could put him safe, but until he puts anything but the very basic info in his post I'm happy to raise it as something he needs to consider.

[Alchemy Accountancy]

If it's the same role and all you are changing is your engagement method it could be argued you should have been inside all along so a big risk if you get investigated.

NLUK is right, if HMRC looked at you for IR35 then moving to a perm role would indicate you should have been inside when working through your PSC.

I agree, in theory, with this - irrespective of whether starting to use or ceasing to use a limited company, then if a role is classed as employed in the absence of the limited company, and there is no change to the working practices when moving from one to the other then HMRC would have grounds to apply IR35.

Moving from limited to perm is certainly less obvious than the other way, and I don't think IR35 has ever been tested in the way described, but that is not to say that HMRC couldn't or wouldn't try.

[ChimpMaster]

I would think it was a red flag for HMRC, if the role is much the same.

Look at what happened in the Public Sector with the enforced IR35 debacle. Anyone in a running contract who was deemed inside IR35 was then a target for HMRC investigation on past contracts at that client.

[malvolio]

Would agree with @Maslins, going the other way would be a concern for the same place.......although would be interesting to compare before/after roles to see how similar they are.

I would also take a close look at the remuneration package on offer...

[Dom at Fox Bartfield]

Perm

Would agree with @Maslins, going the other way would be a concern for the same place.......although would be interesting to compare before/after roles to see how similar they are.

[Maslins]

I don't necessarily agree with the above two posters. If it was the other way around (ie you were a permie, then quit and went back as a contractor straight after) it would be a concern.

I don't think there are any particular concerns from a tax perspective. We tend to recommend you don't do anything tricky to reverse (eg VAT de-registration) until you're through any probationery period and confident you'll be sticking with the permie role. However if you've been contracting for them for some time presumably you/they know what you're getting into so shouldn't be any nasty surprises.

[taxevo]

NLUK is right, if HMRC looked at you for IR35 then moving to a perm role would indicate you should have been inside when working through your PSC.

I suppose it comes down to whether you want to continue as a contractor or make the switch to permanent employment.

[northernladuk]

Mulling over a perm offer from my current contract client (direct, no agency).

Any gotcha's or red flags I should be mindful of, if accepting the offer?

thanks

If it's the same role and all you are changing is your engagement method it could be argued you should have been inside all along so a big risk if you get investigated.

Whatever the situation keep your tax investigation insurance going for a full calendar year after accepting.

Be prepared to spend two weeks writing yourself a performance evaluation and agreeing criteria with your manager which you can spend weeks updating after you've had your yearly 360 review. Enjoy the feeling of being told you are great and then getting no pay rise.

Don't forget to hand in your CUK account on the first morning of your employment.

HTH

[ContractorBanking]

Mulling over a perm offer from my current contract client (direct, no agency).

Any gotcha's or red flags I should be mindful of, if accepting the offer?

thanks