Reply to: I'm inside IR35 but my employee is outside - same contract

[yorkshirespud]

Sounds like the OP’s company is a solid consultancy company, with its own employees, and an owner, who both consult for a client via the OP company.

How is this any different from Kainos or Deloitte etc turning up with 2 consultants, 1 of which is an employee of e.g Kainos, and the Director who is also a shareholder turns up at the client to consult as he’s still hardcore.

Not remotely inside IR35, and OP should inform client that off payroll does not apply, and any attempt is breach of contract.


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[pauljh]

Right, it doesn't matter. Also, what matters is not an actual substitution but a right that is not unreasonably fettered. The main thing about a substitution is that the worker completes the work under the same T&Cs, on behalf of YourCo (or OPCo).

Best thing for the OP to do would be to get a status expert to discuss w/ ClientCo, so that everyone is clear about how to answer the substitution question in CEST and then to complete it accordingly (since a RoS is about the only thing CEST is good for). However, the OP may not get this opportunity if the client has decided to ignore reality (as many seem to be doing).

Do we have some status expects who I can discuss with (paid) and get to talk to my client?
I thought I was good due to the issues with my "employess" tax (holiday, etc etc), my client is now suggesting they would not tax "his" payments but would tax mine even tho we are on same invoice and contract, I'm starting to think if they go that way I might lower my day rate to 1p and up his considerably, this all feels so just completly barmy....

So tips for someone to come in and "prove" one way or the other please?, QDOS I'm guessing (who I already have IR35 'insurance' with), waiting on new contract but I don't see how "half" of it can be inside IR35 and have outside?

[jamesbrown]

That’s an interesting point.

Do you think it’s significant that there’s one employee and one director in the relationship with clientco?

In your opinion, would the situation be any different if both workers were working in the same way but instead of director/employee there were two directors or perhaps even a director/subcontractor? By working in the same way I mean two roles/one contract to work in the same team with same client.

Guess there would be no difference, as you can still argue an absence of personal service...

Right, it doesn't matter. Also, what matters is not an actual substitution but a right that is not unreasonably fettered. The main thing about a substitution is that the worker completes the work under the same T&Cs, on behalf of YourCo (or OPCo).

Best thing for the OP to do would be to get a status expert to discuss w/ ClientCo, so that everyone is clear about how to answer the substitution question in CEST and then to complete it accordingly (since a RoS is about the only thing CEST is good for). However, the OP may not get this opportunity if the client has decided to ignore reality (as many seem to be doing).

[northernladuk]

Yes, but that's not actually his point. His point is that if client says, "We want you to do X," and you say, "Well, actually, I'm ill today, I'm going to have my employee do X," and they say, "Fine," substitution just happened. And if they are fine with that substitution, you are outside, even if they are exercising control, etc.

Possibly but what we are missing is the details of his contract. If it is two distinct pieces of work under an overarching contract then yes this could be true. It would be interesting to see what the client says when this substitution means his employee isn't working on what he should be doing though.

If it isn't separate work and just a single work package of 8 days a week then it wouldn't substitute but if that is the case is likely not to be an IR35 problem anyway.

Without knowing the minute details of the engagement I don't think we can answer.

[peche]

But if he's onsite doing "your job", then you're interchangeable and there's no you-personal service.

That’s an interesting point.

Do you think it’s significant that there’s one employee and one director in the relationship with clientco?

In your opinion, would the situation be any different if both workers were working in the same way but instead of director/employee there were two directors or perhaps even a director/subcontractor? By working in the same way I mean two roles/one contract to work in the same team with same client.

Guess there would be no difference, as you can still argue an absence of personal service...

[pacontracting]

if we go back a few millions years yes, but in real terms nope, infact I sponsored him from overseas!

And this is the risk with IR35. People read too much into it wheras in fact, if you take a step back and look at the arrangement (paint a picture if you like), it can't possibly be one of employment.

There are far too many low hanging fruit for HMRC to try to take this arrangement on.

[pauljh]

Silly question: is “Employee A” related to you?

if we go back a few millions years yes, but in real terms nope, infact I sponsored him from overseas!

[WTFH]

Silly question: is “Employee A” related to you?

[pauljh]

Thanks for all the replies peeps. Much appreciated.

[northernladuk]

Yes if deemed inside it will collapse my company and I will fire him and actually move abroad.

I believe a couple of posters on here know what to do when being taken to an employment tribunal so when you need help they are here for you.

[ladymuck]

At current clientco, I do know they contacted all the firms doing work for them and ask which bodies being supplied were employees and which were via a PSC.

That then informs how they treat the payments.

Obviously in the revised contract will be something indemnifying the client against the firm lying about who is / isn't an employee and maybe (I don't know) they have asked for some evidence of employment.

I would expect your client to do the same or similar.

Therefore, you would continue to pay your employee £100 and charge them out at £1000.

It's still your work for them, whether it requires your personal presence or not etc, that will be most affected.

[WordIsBond]

Yes if deemed inside it will collapse my company and I will fire him and actually move abroad.

He could do my job but in reality can't because he's already on site doing it. so if I'm sick I can't say I'm sending Employee A as he's already there and can't do two jobs at the same time....

Yes, but that's not actually his point. His point is that if client says, "We want you to do X," and you say, "Well, actually, I'm ill today, I'm going to have my employee do X," and they say, "Fine," substitution just happened. And if they are fine with that substitution, you are outside, even if they are exercising control, etc.

[jamesbrown]

Yes if deemed inside it will collapse my company and I will fire him and actually move abroad.

He could do my job but in reality can't because he's already on site doing it. so if I'm sick I can't say I'm sending Employee A as he's already there and can't do two jobs at the same time....

But if he's onsite doing "your job", then you're interchangeable and there's no you-personal service.

[pauljh]

Bottom line, I think this will sink YourCo as it operates today if your client says this contract is inside.

If it isn't, then fine and the risk is with them.

Does your employee have the right, not unreasonably fettered by the client, to complete work that you would otherwise complete when you were ill or unavailable for any other reason?

If so, that sounds like a legitimate RoS and the CEST will always give an outside determination for that.

Otherwise, I tend to agree with the other posters that it smells a lot like employment, except for the potentially strong RoS.

Yes if deemed inside it will collapse my company and I will fire him and actually move abroad.

He could do my job but in reality can't because he's already on site doing it. so if I'm sick I can't say I'm sending Employee A as he's already there and can't do two jobs at the same time....

[jamesbrown]

My view, FWIW, is that employees DON'T hire other employees and pay them personally. If you have a single contract that covers both you and your employee, in which you agree to provide two people, even if they are named, it is NOT therefore a contract of employment.

Furthermore, the most important part of control is "how the work is done" and you decide that, so that gives you at least an argument on SDC. It wouldn't be a strong one and not enough if it weren't for the fact of your employee.

If you have separate contracts, one for you and one for your employee, you'll be inside on yours and he won't be inside because he's fully PAYE already. But if it is a single contract it's hard to say how that can be considered a contract of employment -- I've never seen an employment contract that said, "The employee shall provide another worker, we'll pay him X amount for doing so, and he's responsible for employing that worker."

I am not an accountant or an employment lawyer.

Regardless, it's a hypothetical contract that applies to each worker separately. Obviously, actual employment supersedes deemed employment for tax purposes, so it's only relevant for the OP worker, not the employee worker.

The only thing that gives me pause for thought is the RoS. Two people supplied by the same company, working on the same project. Surely there's a strong RoS there, probably operated on many occasions?