Bonuses & IR35

[Platypus]

Just to clarify, this whole bonus thing hasn't been talked about in the context of explicit contractual detail, more like "Hey you did really well, have $X". It sounds like any bonuses should be more strictly described...

Then when the bonus arrives, you simply submit another "services rendered" invoice.

[Accountax Consulting]

To confirm what Platypus said above. Quite simply if your contract is outside of IR35, receiving stage payments, bonuses, commissions etc will not alter the contractual position.

Provided the contract sufficiciently addresses the fundamental IR35 issues (control, personal service & mutuality of obligations) the contract will not be caught by IR35.

Obviously "in business" factors such as invoicing, intention, financial risk etc all help to strengthen the IR35 position, but simply receiving a bonus cannot undo all the positive criteria.

Simple advice - get your contract reviewed by an IR35 specialist

[thunderlizard]

If you've got enough direction and control in how you achieve those bonuses - e.g. bring in a team of cut-price coders from Romania and pocket the difference - it shows you're even further outside IR35.

[d000hg]

Just to clarify, this whole bonus thing hasn't been talked about in the context of explicit contractual detail, more like "Hey you did really well, have $X". It sounds like any bonuses should be more strictly described...

[Platypus]

Although I think that would be far too complicated for HMRC. Any precedents for overseas clients and IR35?

OK I looked this up. I was being lazy before.

Working for an overseas client is not a "get out of jail free" card but lack of control is. If the contract is clear that the client does not supervise, direct and control the ‘manner’ and ‘performance’ of the services then you're in the clear. The fact that you are geographically distant does help but the contract should be specific.

The fact that you are free to carry out work for other clients at the same time helps make this point.

A B2B contract which does not mention you by name is also critical (this removes the element of personal service). Explicit lack of MOO would also be a great help.

In summary, if your contract is already IR35 safe then (IMO) the new bonus arrangement will not change that. After all, sub-contractors often receive bonuses for completing on time

Of course, seek professional advice. The above points were made when Accountax reviewed a contract I used when I worked for a USA client in 2002.

[ratewhore]

Not sure about that - there's very little to stop the USA client from exercising D&C remotely - a bit like an employee working from home whilst taking a half-hourly phone call from their boss. I certainly wouldn't want to rely upon it as a defence against IR35.

Although I think that would be far too complicated for HMRC. Any precedents for overseas clients and IR35?

[chicane]

I would have thought that if client is in the USA and you are over here (working from home?) then you would likely be mostly clear of IR35 due to lack of D&C. I would have thought that your working arrangement probably look most unlike those of an employee.

Yes? No?

Not sure about that - there's very little to stop the USA client from exercising D&C remotely - a bit like an employee working from home whilst taking a half-hourly phone call from their boss. I certainly wouldn't want to rely upon it as a defence against IR35.

[expat]

You've just got to be careful with the wording. Firstly, try to avoid using the term 'bonus' - something like 'completion payment' would be better. Also ensure that it isn't performance related.

Except that all of these things, possibly under different names, are quite characteristic of "real business" relationships.

I suppose of there is one big difference between relationships of business and employment, it is that business tends to have penalties, employment tends to have bonuses.

But the real problem is that the government thinks that everybody should be employed by somebody. It's a Labour worldview, that employment is simpler to control; though indistinguishable in practice for the likes of you and me, from the Tory worldview that all the plebs should be ether employed by somebody of the right sort, or unemployed.

[Platypus]

A client in the USA (snip)

I would have thought that if client is in the USA and you are over here (working from home?) then you would likely be mostly clear of IR35 due to lack of D&C. I would have thought that your working arrangement probably look most unlike those of an employee.

Yes? No?

[Qdos Contractor]

You've just got to be careful with the wording. Firstly, try to avoid using the term 'bonus' - something like 'completion payment' would be better. Also ensure that it isn't performance related.

[DaveB]

Depends how the contract is worded I would think. A lot of big projects structure things similarly with bonuses for early completion, completion under budget etc.

[d000hg]

A client in the USA wants to set a maximum amount of chargeable hours for contractors (say 40 per week), but introduce bonuses for meeting key targets... in other words you work unpaid extra hours as a full-time contractor but are likely to get some form of compensation.

He claims this is quite common in his experience, but it doesn't sound common based on threads on this board. Is this a difference in culture across the pond?

And more importantly, is agreeing to this kind of arrangement likely to endanger by IR35 status? To me, it sounds a lot like an employment arrangement. I'm not so keen on the idea anyway since I work with multiple clients at the same time; this could be a good argument when we discuss it properly.

Advice?