Reply to: Inside IR35 and using a limited company

[The Lone Gunman]

My guess is working practices always comes second in an audit, surely the first thing the Revenue look at is the contract, just because it’s the easiest thing to do.

Yes, they will always start with the written contract. If that says you are IR35 caught then they will go no further even if the reality is somewhat different. If the contract says you are not caught then they MAY talk to the client and MAY decide the reality does not match the contract at which point they will construct an imaginary contract based on what the client tells them and what the client agent contract says.
So firstly get the contract to state you are outside, then make sure working practice matches the contract. Keep records that show your working practice is outside, get written confirmation from line managers as you go if you can.
Then when the HR bod stands up in court and says you are just like any other employee you can show he is misinformed.

[malvolio]

I do hope you're not using company money to pay your living costs...

At year end, the IR35 caluclation is dead easy: for your total income from IR35 caught contracts deduct accountant's fees, deduct 5%, declare that figure as your annual income. Pay lots of PAYE and NICs.

Then if that figure is also more than £5240 (and if it isn't you're in the wrong job), pay the CT on the balance and take everything else out that you need as a dividend, leaving enough behind to pay the bills.

Before doing all that though - go hire a good accountant before you really screw up.

[johnywalker]

Hmm 5% extra is a little more interesting, especially with everything going up in price (my diesel X5 really doesn't seem like such a smart choice at the moment, £100 fills are now the norm).

Reasons given for being inside were: something about being under the direction and control of the client, no substitution being allowed and a fixed period of termination notice.

Bearing in mind other posts, it seems the chance of an inspection is very low and the terrible win rate of the Revenue does make it tempting but I'd prefer to stay legit.

I'll obviously see if I can get the contract changed, if not, it still looks like ltd might be the way to go.

My guess is working practices always comes second in an audit, surely the first thing the Revenue look at is the contract, just because it’s the easiest thing to do.

I have been contracting for 1.5 years without knowing the IR35 issues and clearly my contract is inside IR35. I ahve taken out 10% of my annual income as expenses (rent, council tax, electricity, car mileage) which I shouldn't have if my contract is inside IR35. So, I have only paid tax and NIs on 88-90% salary. HOw can I correct this mistake and become legitimate again?

I was doing some IT reselling business as well for a annual turnover of 15K with maybe 2-2.5K profit. Does that count? Can I say that the expense was related to the reselling part in the same company?

Johny.

[Jubber]

Yes, they will always try to contact the end client directly whether by way of written questions or a face to face meeting. You can attempt to preempt this by utilising documents like our Confirmation of Arrangements - see our recent article here.

My Hector didn't. He just asked me a list of IR35 type questions, took my books away then sent them all back by standard post and the postman left them on the doorstep.

[malvolio]

In a rational universe (i.e. not one that HMRC seem to inhabit), it would seem that if your contract is outside IR35, then there is a greater chance of the working practices also being outside. With such a contract at least you've a chance of educating the client so that they appreciate that you are not an employee - obviously doesn't work with all of them.

Good point. If we could use why we are asking for changes as a way to educate the clients about why they are important, it would certainly help matters. However, it's a bit like playing Rachmaninov in boxing gloves; by the time you get through the daisy-chain of intermediaries, none of whom actually care less anyway, the message has got a trifle blurred.

[NotAllThere]

In a rational universe (i.e. not one that HMRC seem to inhabit), it would seem that if your contract is outside IR35, then there is a greater chance of the working practices also being outside. With such a contract at least you've a chance of educating the client so that they appreciate that you are not an employee - obviously doesn't work with all of them.

[malvolio]

OK thanks (and what do you mean 4/10, surely I automatically get 5/10 just for posting and referring to you geniuses).

So...if I can negotiate with the client and get the contract to be reworded, I'll be okay?

However, in the unlikly event of an investigation do the Revenue communicate directly with my client? I guess they must do or how else would they find out what my working practices are? I know for sure the client won't lie to cover my back (stinking clients!).

4/10 becuase you should know this stuff anyway...

Yes, go for a renegotiation, but as Lisa rightly says, if the contract and the reality don't align then the reality wins.

As for the rest, one guy recently lost heavily because an HR wonk with no knowlegdge of his working arrangements stood up in court and flatly denied several of his contractual clauses, another client cheerfully admitted that thir contract with the agency bore no relation to the agency's contract with the contractor, and the Dragonfly case is under appeal because the ruling appeared to totally disregard both contract and reality in favour of some novel interpretations of both. So there is absolutely no certainty at the moment; HMRC appear to be making it up as they go along.

Like everything this stupid government touches, it's all a gamble: there is no certainty.

[Qdos Contractor]

OK thanks (and what do you mean 4/10, surely I automatically get 5/10 just for posting and referring to you geniuses).

So...if I can negotiate with the client and get the contract to be reworded, I'll be okay?

However, in the unlikly event of an investigation do the Revenue communicate directly with my client? I guess they must do or how else would they find out what my working practices are? I know for sure the client won't lie to cover my back (stinking clients!).

Yes, they will always try to contact the end client directly whether by way of written questions or a face to face meeting. You can attempt to preempt this by utilising documents like our Confirmation of Arrangements - see our recent article here.

[williamdavis]

OK thanks (and what do you mean 4/10, surely I automatically get 5/10 just for posting and referring to you geniuses).

So...if I can negotiate with the client and get the contract to be reworded, I'll be okay?

However, in the unlikly event of an investigation do the Revenue communicate directly with my client? I guess they must do or how else would they find out what my working practices are? I know for sure the client won't lie to cover my back (stinking clients!).

[malvolio]

Well yes, I agree. I was however illustrating the point that the OP appears to be willing to lose a lot of money without actually knowing why. IR35 only continues to work as a tax because most of the people paying it have no understanding of why they needn't be.

As for the detail, you can argue that a) the client only need retain the right of reasonable refusal of an offered sub rather than an outright veto, b) agree but that is down the contractor to resolve (and is again an education issue) and c) you can always find one, most of the time people don't try.

[LisaContractorUmbrella]

[QUOTE=malvolio;608300]Given this is losing you around 20% of your gross income, it might be a good idea fully to understand exactly what. RoS can be squared away with a simple contractual change. Notice period is not really indicative either way wrt IR35

The contract can be changed to say that he can send in a substitute but that's not a lot of use in the event of an investigation if a. the client would not allow it b. the agency would supply the substitute or c. he has no contacts that could serve as a substitute for him

[malvolio]

Reasons given for being inside were: something about being under the direction and control of the client, no substitution being allowed and a fixed period of termination notice.

Given this is losing you around 20% of your gross income, it might be a good idea fully to understand exactly what. RoS can be squared away with a simple contractual change. Notice period is not really indicative either way wrt IR35

4/10 - must try harder

[Qdos Contractor]

My guess is working practices always comes second in an audit, surely the first thing the Revenue look at is the contract, just because it’s the easiest thing to do.

Chronologically, yes. In terms of importance, no.

[williamdavis]

Hmm 5% extra is a little more interesting, especially with everything going up in price (my diesel X5 really doesn't seem like such a smart choice at the moment, £100 fills are now the norm).

Reasons given for being inside were: something about being under the direction and control of the client, no substitution being allowed and a fixed period of termination notice.

Bearing in mind other posts, it seems the chance of an inspection is very low and the terrible win rate of the Revenue does make it tempting but I'd prefer to stay legit.

I'll obviously see if I can get the contract changed, if not, it still looks like ltd might be the way to go.

My guess is working practices always comes second in an audit, surely the first thing the Revenue look at is the contract, just because it’s the easiest thing to do.

[jigsaw]

I'll work on the client to see if I can get the contract changed but I don't hold out much hope.

There are those who would tell you the contract wording is irrelevant if your actual working practices do not match the words. So maybe it will only be worth getting the contract changed if the client will also agree to the corresponding changes to the way you work.