Reply to: Does The Ir35 Proof Scheme Really Exist

[partimer]

in agreement

Actually I'm in agreement with you which is why I said most people have "permitted substitutes" since I've yet to meet any customer who will give you absolute control on who you send as your sub.

In reality most of us will never have **absolute** control and so I was saying that a substitution clause is useful but not by itself. Which is where we agree that the IR will argue that it's a sham, etc.

Glad we both agree

Which brings us back to the original thread. There is no magic bullet. The magic bullet is something that you can't actually get 100 percent into your working practises (MOO, absolute control in sub, etc.) but perhaps a varying degree which when totaled, may get you outside IR35.

Nice try though ...

[ASB]

Magic Bullets.

The substitution clause is not a magic bullet.

Quite, the clause is not. However the (sorry to shout) ABSOLUTE RIGHT OF SUBSTITUTION IS.

MacKenna in ReadyMix concrete case:-

A contract of service exists if these three conditions are fulfilled.
- The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.
- He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master.
- The other provisions of the contract are consistent with its being a contract of service.

If personal service is not required then, as a matter of law, it cannot possibly be employment.

This is, of course, why the IR will seek to argue that any substitution clause is a sham. Or does not represent a right to substitute, merely a right to ask to substitue. Or they will try to infer a contract with no substitution clause on the ground the client says "we wouldn't accept one" (notwithstanding the legal implications for the client if they did this in practice).

You may also wish to look in the IR status manuals ESM 1053 and 1054 - in which the IR say "if right to substitution, not possible to be an employee".

Moving on, you may also want to consider the means in which the IR may seek to apply IR35 if actual substitution has occured.

[partimer]

sub

The substitution clause is not a magic bullet. It is a good indicator against IR35 but not by itself. You'll find that most people have things like "permitted substitutes" in the contracts because most clients would not allow you to send Bob the Builder to replace you in the IT department.

Only an idiot customer would allow you to send Jack the Ripper as your sub (but they're out there).

Also, you have to remember that the IR look at the actuality of the working conditions and the "agent/customer contract". Like we have all been saying, it's a total mess !!
FUD.
Like an idiot when IR35 first crawled out of the sewer, I sent a contract to that Luton place where you can get your contract viewed by the IR. After much hassle I got a "not IR35 contract". Second contract I send in, (contracts are dealt on a contract by contract basis) which was identical to the first, was a failure. Utter farce. There was a tiny article in Freelance Informer (who ?) many years ago about it.

Better to prepare your defence properly (don't stick your head in the sand) and wait for the knock on the door ...
Make sure the customer is on your side otherwise you have no chance.

[Bookworm]

Is there hope in the real world

If simple answers were to be the order of the day, and having read the many comments about the contract and how it can be manipulated to get me out of IR35, I sit here with raised eye-brows thinking what client or agency would sign a contractor up and give that contractor the absolute right of substitution.... if the right was absolute, what would stop me from getting the contract on my merits and skills and then 2 days later telling my client that my friend (with no expertise in the field) would be replacing me. This cannot be a real possibility, unless I am reading everything wrong.

[ASB]

Moo again

There seems to be a bit of confusion here.

Firstly if there is a contract there is MOO. It IS that simple. If there were no MOO then you could do the work, the other party say "not paying" and that is the end of the matter.

Am I saying everything will fail IR35 because of this? No, of course not.

There are a number factors which have to exist in order for a contract to be potentially a contract of employment. One is personal service. One is the irreducible minimum of MOO (can't remember the case and cant be bothered to look). On the MOO front it is quite unclear as to the level this is. Various opinions are put forward, but the truth is nobody knows.

However, the Holy Grail DOES exist - but it's a bit difficult to reach - all you need is a substitution clause which gives you the absolute right to substitue. But this is not easy, the courts have held that fettering on ability does not make it a sham.

Where the problem arises is that it is none of the contracts that anybody has signed that determines the contract that is tested for IR35. However as a matter of law (or at least until higher precedent is set) a substitution clause IS a magic bullet. Oddly enough this is one of the reasons that the IR focus on trying to get sombody to say "we want him.her" so that they can attempt to ignore it from the inferred contract.

[malvolio]

What expense? Company set up is roughly £50, accountant about £40-£80 a month. Umbrella is around 5% of earnings, so do the sums - 6 months at even £250 a day is £375, against £290 for the DIY option.

if you're IR35'd you're already down, so why give away any more?

[redowl]

Thanks for the advice.

My issue is that I have a possible contract covering maternity leave, which from the little I know, would be inside IR35. Therefore the expense of setting up my own company, against using an umbrella company doesnt add up ?

[malvolio]

No, the umbrella makes its money from charging you for its services - which is a good reason not to use them IMHO. Plus they usually cost a bit more than having your own accountant (and a lot more than doing it yourself, if you know how).

The umbrella/employment thing is a bit complex, different companies do different things and I've never really got my head around it properly, but AIUI you are essentially their employee, they pay you a wage plus dividends based on your earnings. It's trade off of hassle vs. IR35 caught, in effect

So why not run a Ltd of your own? I never really understand why you should pay someone else to manage your own money. It's not like they add any value, after all. And with your own company, as I said above, you are much more able to keep out of IR35

[tim123]

I have done a little research, strangely, including having read that particular piece in the past. Where does it contradict what I said?

Yeh you're right, it doesn't. I didn't read it, I had assumed that it was the item JA wrote about MOO within a contract. Obviously that article is somewhere else

Malvolio, I'd like to continue this point, but as I am about to go on holiday I don't have time. Another time perhaps?

tim

[redowl]

Still confused

I have been following this thread and I am still confused, although I am a newbie.

Does an umbrella company make money by providing you as a service to a client, as you are technically a permanent member of their staff or purely from monthly fees ?

If the former, how does this differ from a contractor with a limited company offering the same service ?

[malvolio]

Hey, you got it! Now you're thinking like someone trying to run a freelancer business in Gay Gordon's new utopia...

[Bookworm]

Ooooops

Okey dokey. After all the very salient points, and I dont use that word to often, I can only conclude that I would not be alone in doing the perverbial ostrich on this issue, even though I am not keen to take the risk that Hector decided to knock on my door. If the market, my colleagues and individuals are keeping low then I will asume the correct position and lie flatter than a snakes belly in the hope that Hector does not tread on me.

[rootsnall]

The last post is a good summary and you won't find a clear and simple way of ensuring you are outside IR35 when working in a normal contractor/agent/client relationship. You've either got to live with the risk of declaring yourself outside IR35 or play it safe and pay the full NICs on your earnings. Have a look at the PCG website ( http://www.pcg.org.uk/ ) and if you believe the stats your risk is pretty low as things stand.

[malvolio]

Actually, it can be very simple. Ignore all the legalities and fine disucssion and billshut and it comes down to two realistic options:

1) Decide that you are caught by IR35, because your job and the contract terms clearly fail one or more of the various criteria above. Take off 5% plus travel expenses and pay the rest as salary.

2) Decide you are not caught, by the same criteria. Pay yourself a sensible wage, take dividends when you can afford it - not too often and not too regularly - keep all your paperwork in order and all returns in on time. That way you behave like a business - as defined by Dawn Primarola - and are not "cheating" Dim Prawn out of large amounts of money. So you probably won't get investigated, when there's all the other juicy targets to pick from. And even if you do the shortfall won't be that onerous becuase you will have paid the right amount of tax anyway and only saved some NICs.

So if you think about it a bit more, there is a fair chance you can work safely outside IR35. Especially if you get professional advice on the contract from someone like Bauer and Cotterell, who will argue necessary changes with the agent for you.

At the end of the day, it's your decision.

[Bookworm]

Oh so simple..not

The way forward now so clear, in that there is no way forward. It appears that there would have to be a lot of change involved to get a consistent and water tight way of using the contract and the various guises.

Is this the only way forward, or is there other IR35 proof ways of operating. Still doing my check list and need to exhaust all avenues.

I now have to admit that with even more research and the comments being made here at CUK that I need infuse even more information before I can bow out of this discussion gracefully...

ANY IDEAS WELCOME