Reply to: HMRC win IR35 case

[Ardesco]

What would they do? Would the Tories be so keen to overturn IR35 when ( ) they get in? I reckon they will just carry it on.

Wouldn't it make more sense for the PCG to be fighting this instead?

They have publically committed to removing it (Of course actually doing it once they get in power is another thing). IMHO we would have nothing to lose by having a tory government in power and generally speaking they know how to handle the econmy a million times better that Nu Liemore.

Hopefully when they next get in they will clean up the tax legislation and drastically simplify it, shave off a few tens of thousands of pointless civil service jobs and encourage entrepreneurship once more. This country really needs to encourage small business and innovation once more. All Nu Liemore is doing is quashing it and doing thier best to force people into permie jobs.

[pisces]

Email this to your local tory MP for comments. This result stinks and should get more press than it is getting. How can it be legal to determine your status based on a contract you have not seen or signed.

What would they do? Would the Tories be so keen to overturn IR35 when ( ) they get in? I reckon they will just carry it on.

Wouldn't it make more sense for the PCG to be fighting this instead?

[NotAllThere]

IMO this is much simpler, there are generally no IR35-type worries...

That's always been my issue about IR35 - determining whether it applies. The best we had from the Dim Prawn was "It's perfectly clear. If it applies, you have to pay it".

In Switzerland, where my company is incorporated, there is no tax relief on dividends - the co. pays co. tax on their profits, you pay income tax on your dividend income. So there's no real point in not just taking out cash as salary. It also costs ~£5000 to incorporate. OTOH, expenses rules are far more relaxed - almost "if you've a receipt, you can claim it".

[beaker]

They probably had a handcuff clause with the agency that said something along the lines of "If you take our employee from us you need to pay us a % of what you pay him". By keeping the agent on side I suspect they meant "We don't want to waste time and money in court when the agent finds out you're working for us again".

Yes, I suspect that's exactly what it said

[beaker]

For those that are interested, based on my experience here is how contractors work in Australia - I'm not saying this is better or worse, it just provides another perspective... Ignore it if you want.

Like the UK contractors are discouraged from running their own Ltds to pay themselves a small salary and lots of dividends. In addition to the usual tests (the contractor must supply his own equipment etc etc) there is the 80/20 rule, which states that a contractor cannot have more than 80% of his/her revenue from one source (client) in the year.

Due to a series of income tax cuts, the tax thresholds also kick in much higher, so in most cases there is no incentive for a one man band to incorporate.

If you go through an agency, you will effectively become an employee of that agency. They will pay you a salary plus superannuation (pension), plus any salary packaging benefits you can negotiate (things you can get paid for by your employer before tax, eg PC, education, car payments etc). The agency will charge around 10-20% of the client's gross payment for this. If you source your work directly with a client, they may not want you on the payroll so you may be employed through an agency, just for doing the payroll. The agency will pay payroll tax (like employer's NI) as they are your employer. You could also set up your own company to pay yourself a salary (no dividends).

IMO this is much simpler, there are generally no IR35-type worries as legitimate businesses with more than one client and typically more than one employee can safely incorporate, and one-man contractors can effectively enjoy permanent benefits and tax treatment. The overall income tax burden may be higher in Oz, but the cost of living is lower.

[Ardesco]

Having said that though, I spoke with my previous client about coming back at some stage and if I did would the agent still be entitled to commission? They said if it was within 6 months then they wouldn't want to get the agent off side and would continue to pay the agent commission. In this case I had a direct contract with the client and the agent had a contract for a commission only, which meant that he didn't get involved with the payroll.

They probably had a handcuff clause with the agency that said something along the lines of "If you take our employee from us you need to pay us a % of what you pay him". By keeping the agent on side I suspect they meant "We don't want to waste time and money in court when the agent finds out you're working for us again".

In the case of the Agency never supplying you this handcuff clause could not have been put into the contract in the first place, they then probably wouldn't have cared.

[beaker]

You know as well as I do that any end client will try and wriggle out of paying an agency a commision at extension time if they can.

Having said that though, I spoke with my previous client about coming back at some stage and if I did would the agent still be entitled to commission? They said if it was within 6 months then they wouldn't want to get the agent off side and would continue to pay the agent commission. In this case I had a direct contract with the client and the agent had a contract for a commission only, which meant that he didn't get involved with the payroll.

[Ardesco]

Not to mention if the Agency/EB does not have a contract with the contractors company they can't try and put in handcuff clauses and would probably be at a disadvantage when it comes to trying to skim money off the contract after extension.

You know as well as I do that any end client will try and wriggle out of paying an agency a commision at extension time if they can.

I can see why agencies work the way they do, they are trying to protect thier income stream (I'm not saying it is the right way to do it, or even a sane way to do it).

[beaker]

Doesn't this drive home my point about the recruitment sales model I hate so much? If the industry was not seen to be 'supplying our services' as a sales commodity to the client for which they are then paid (with their mark up) then they would not be able to draw up contracts with their clients stating particulars about their 'product' (us) and how it should be used and then claiming it has nothing to do with us.

The sooner the PCG realise that ir35 issues are intrinsicially linked to how contractors are viewed by the recruitment industry and how this overspills into all SME businesses, whether they use EBs or not, the better. At the moment they don't see the link at all.

The upper contract should be about the service the EB provides, not the services contractors provide. It should be about CV sifting service levels, candidate support for prompt payment and so on and payroll services related to the introduction they made. Services which the client should pay them for for a fixed one off fee everytime they introduce a contractor to the client. All other arrangments falling off the back of the introduction should be a direct one - between contractor and the end-client (which is now their client).

Hi Denny, I agree this would be a safer model for contractors to work within. Look at it from the client's perspective though. The client thinks "I have a project coming up, maybe two, I need to get some people in". So they try and get permananent people in, which is usually unsuccessful, so they then turn to their band of friendly recruiters who will bend over backward to get the deal and fill the position with a contract worker.

Most clients don't want to negotiate contract terms with an individual contractor, let alone 20, just so that contractor can get some tax benefit. Recruiters can't be bothered either. In most cases its all about getting someone who can do the job in as soon as possible.

If you are sufficiently skilled and in demand then you have a better bargaining position to negotiate a contract with a client directly on your terms. Which I'm sure is your aim and the aim of most contractors anyway...

[Denny]

Email this to your local tory MP for comments. This result stinks and should get more press than it is getting. How can it be legal to determine your status based on a contract you have not seen or signed.

Doesn't this drive home my point about the recruitment sales model I hate so much? If the industry was not seen to be 'supplying our services' as a sales commodity to the client for which they are then paid (with their mark up) then they would not be able to draw up contracts with their clients stating particulars about their 'product' (us) and how it should be used and then claiming it has nothing to do with us.

The sooner the PCG realise that ir35 issues are intrinsicially linked to how contractors are viewed by the recruitment industry and how this overspills into all SME businesses, whether they use EBs or not, the better. At the moment they don't see the link at all.

The upper contract should be about the service the EB provides, not the services contractors provide. It should be about CV sifting service levels, candidate support for prompt payment and so on and payroll services related to the introduction they made. Services which the client should pay them for for a fixed one off fee everytime they introduce a contractor to the client. All other arrangments falling off the back of the introduction should be a direct one - between contractor and the end-client (which is now their client).

[beaker]

Seems to me that billing should be very explicit as to which task you're billing for and each task should be named on the contract and costs quoted.
Any new tasks should result in either an amendment to or a new contract, with a quote for the cost and again billed according to time spent on that task.

This is how your clients would deal with their clents if they were in the same situation.

[BoredBloke]

Email this to your local tory MP for comments. This result stinks and should get more press than it is getting. How can it be legal to determine your status based on a contract you have not seen or signed.

[Spacecadet]

Seems to me that billing should be very explicit as to which task you're billing for and each task should be named on the contract and costs quoted.
Any new tasks should result in either an amendment to or a new contract, with a quote for the cost and again billed according to time spent on that task.

Nothing to do all day because the network is down? then you can't bill for the fact that the client requested that you travel 500 miles to their site as remote access is a security risk.
Or add an on site minimum charge clause to the contract.

[Archangel]

It may not have any legal grounding but it wouldn't surprise me if they use the 2 year rule as an unofficial pointer when deciding which cases to pursue. It certainly makes the tax take vs costs more worthwhile, and there maybe a "taking the piss" view that coincides with the temporary location/travel expenses rule.

How would HMRC know how long the contract had been in place unless an investigation had started?

[GreenerGrass]

Is it just coincidence that in both cases, the contractor had been at the same company for 3/4 years. I wonder if it's best to keep it to 2 years max?

It may not have any legal grounding but it wouldn't surprise me if they use the 2 year rule as an unofficial pointer when deciding which cases to pursue. It certainly makes the tax take vs costs more worthwhile, and there maybe a "taking the piss" view that coincides with the temporary location/travel expenses rule.