Reply to: How to fall outside IR35

[Iron Condor]

Ah, but there is no way HMRC are going to start chasing all one-man band builders, plumbers, electricians who fall inside IR35 (and I'm sure there are a lot). Has there ever been an instance of this?

Most of these jobs last less than one month.
If your IT contracts were mostly less than one month, HMRC wouldnt bother with you either.

The other point is that when you take on a one man ltd plumber at home he isnt working along side other plumbers that you happen to be employing under paying PAYE.

A one man Ltd plumber contracting for a large plumbing firm for several years alongside PAYE plumbers would be a better comparison.

[Belle]

had it been a one man band he would have fallen inside IR35 for all the reasons that you have given.

Ah, but there is no way HMRC are going to start chasing all one-man band builders, plumbers, electricians who fall inside IR35 (and I'm sure there are a lot). Has there ever been an instance of this?

[LisaContractorUmbrella]

You're right Hex and it's one of the gigantic holes in IR35 that makes the whole thing rediculous.

I had my roof replaced last summer and I specified what I wanted, where I wanted it, the hours that they should be on site (very unwell neighbour one side, young children the other and opposite a Junior school) and who would be doing the work so no RoS. I even supplied many of the materials myself as they were great builders, but lousy supplier and project managers and it's what I do professionally so I got stuff much cheaper than they could. I even had some MOO at least implied as I negotiated a price based on further work to the attics.
By the typically accepted IR35 "guidelines" they failed IR35 on all 3 critical factors, yet they are clearly a seperate business from mine.

IR35 is a complete farce as it's so riddled with grey areas that it's all but impossible to manage with reasonable certainty and (as far as I'm aware, I could be way off beam here) is almost exclusively applied to the IT contracting sector ignoring many other comparable professions.

The thing that makes the difference with IR35 though is that 'they were great builders' - had it been a one man band he would have fallen inside IR35 for all the reasons that you have given.

[Peoplesoft bloke]

You're right Hex and it's one of the gigantic holes in IR35 that makes the whole thing rediculous[sic].


IR35 is a complete farce as it's so riddled with grey areas that it's all but impossible to manage with reasonable certainty and (as far as I'm aware, I could be way off beam here) is almost exclusively applied to the IT contracting sector ignoring many other comparable professions.

All true, but sadly no-one (from Joe Public) likes us so Hector can get away with being a total and utter git.

[TykeMerc]

You're right Hex and it's one of the gigantic holes in IR35 that makes the whole thing rediculous.

I had my roof replaced last summer and I specified what I wanted, where I wanted it, the hours that they should be on site (very unwell neighbour one side, young children the other and opposite a Junior school) and who would be doing the work so no RoS. I even supplied many of the materials myself as they were great builders, but lousy supplier and project managers and it's what I do professionally so I got stuff much cheaper than they could. I even had some MOO at least implied as I negotiated a price based on further work to the attics.
By the typically accepted IR35 "guidelines" they failed IR35 on all 3 critical factors, yet they are clearly a seperate business from mine.

IR35 is a complete farce as it's so riddled with grey areas that it's all but impossible to manage with reasonable certainty and (as far as I'm aware, I could be way off beam here) is almost exclusively applied to the IT contracting sector ignoring many other comparable professions.

[Hex]

Agree with you Hex but with IR35 you can't just take the substitution clause in isolation. To carry on with the builder analogy - if you had a contract with the builder which guaranteed he would be on site at 9am, left at 5pm and had lunch between 12 & 1 and you left him detailed instructions of the work you wanted carried out that day it would be a different situation. With regards to IR35, the lack of a substitute, if he was a one man band, would become more relevent.

Being pedantic - you probably can take the substition clause in isolation. If you have any one of The right to substitute, Lack of Mutuality of Obligation or Lack of Direction and Control then that would mean you're not an employee. Of course, the more pointers away from employment you have the better.

I know a lot of builders who work the same hours every day. Turn up between 7 and 8, leave between 3 and 4. They're not contracted to these hours, but these are the hours they're used to and that's typically what they work. I know a lot of IT Contractors who typically work 9 to 5. They're not contracted to these hours, but these are they hours they're used to and that's typically what they work. I don't see the difference between the two. I don't know how many IT Contractor's contracts specify actual working hours but none of mine ever have.

I've taken on builders and plumbers and given them quite a lot of direction as to what I want doing. I won't actually tell them what tools to use, but I'll tell them where I want the pipes run or where I want the wall built and what bricks to use. In the same way, some IT Contractors will be given a list of requirements - things that need to be built in a specified way. How those things are built (i.e. the tools that are used) is up to the Contractor, the end result of what is built is specified by the client. This seems to me to be similar to the client relationship a builder or plumber has.

I understand that not all IT Contractors work in this way, but a great many do.

[LisaContractorUmbrella]

But imagine a builder who worked on his own and was not part of a "firm of builders". He might equally find himself unable to finish your extension in time for circumstances he found it hard to control. That doesn't make him your employee does it? Just because he hasn't got anyone lined up to substitute for him should he need a substitute does not make him an employee. And I can't see how anyone thinking logically could propose this.

A friend of mine recently hired an electrician to rewire his house. The electrician did one day's work and then broker his foot playing football. He couldn't return for two weeks. He did not send a substitute. He didn't suggest sending one. He suggested my friend wait for two weeks until he could hobble around better. My friend eventually hired a different electrician to complete the job. The first electrician didn't exercise his right to substitute, but that doesn't mean he didn't have one. He patently didn't have someone lined up to substitute for him. I still believe he was self employed - don't you?

Agree with you Hex but with IR35 you can't just take the substitution clause in isolation. To carry on with the builder analogy - if you had a contract with the builder which guaranteed he would be on site at 9am, left at 5pm and had lunch between 12 & 1 and you left him detailed instructions of the work you wanted carried out that day it would be a different situation. With regards to IR35, the lack of a substitute, if he was a one man band, would become more relevent.

[Hex]

Sorry, not sure I made the point clear AnthonyQuinn - a firm of builders would know of someone to finish your renovation because they have a number of employees who are all equally as qualified as the original builder. They would not necessarily know the name of the individual who would finish the job at its commencement but they could name a number of individuals who would be capable of finishing the job should it become necessary.

But imagine a builder who worked on his own and was not part of a "firm of builders". He might equally find himself unable to finish your extension in time for circumstances he found it hard to control. That doesn't make him your employee does it? Just because he hasn't got anyone lined up to substitute for him should he need a substitute does not make him an employee. And I can't see how anyone thinking logically could propose this.

A friend of mine recently hired an electrician to rewire his house. The electrician did one day's work and then broker his foot playing football. He couldn't return for two weeks. He did not send a substitute. He didn't suggest sending one. He suggested my friend wait for two weeks until he could hobble around better. My friend eventually hired a different electrician to complete the job. The first electrician didn't exercise his right to substitute, but that doesn't mean he didn't have one. He patently didn't have someone lined up to substitute for him. I still believe he was self employed - don't you?

[PhilAtBFCA]

Peoplesoft bloke

There's the rub. Your status in relation to IR35 may be defined by a contract you aren't party to and haven't seen - hardly fair.

Agreed, it does seem unfair.

The best protection you can try and aim for , IMHO, is

1. a letter to your agency confirming your understanding of the Substitution caluse, and requesting their confirmation that there is nothing in their contract with the client that is inconsistent with the terms between your company and them.
2. a letter to your client confirming your understanding of the working arrangements and asking for their confirmation


Phil

[Peoplesoft bloke]

To me they are looking for two things:-

1. The working conditions are reflecting the contract
2. The Upper ( Agency>Client) contract reflects the Lower ( Agency > Contractor ) contract.



Phil

There's the rub. Your status in relation to IR35 may be defined by a contract you aren't party to and haven't seen - hardly fair.

[PhilAtBFCA]

the judges are choosing to ignore such contractual rights

Thanks for your explantion of the shorthand :-)

I cant see the judges ignoring contractual rights at all. Reading the judgements of the last cases including the Tilson Employment Tribunal one I wrote about recently, the judges do not seem to be ignoring the contract terms at all.

I see what they are doing, is not relying on the contract when it is not what is really happening, or it is "bogus" or a "sham" both words used in cases in the past. To me they are looking for two things:-

1. The working conditions are reflecting the contract
2. The Upper ( Agency>Client) contract reflects the Lower ( Agency > Contractor ) contract.

The second of these was the real show stopper ( IMHO ) in Dragonfly. OK there was the fact the the Substitution caluse was inserted after IR35 was introduced and was not there before, the fact that the client did not think a substitute could be sent, in spite of teh contract, but the fact that the agency and the client didnt even have that in their contract really blew it.

This has clearly showed why you cannot rely, from the point of view of wanting to prove being outside IR35, on just one of the three "Irredicible Minimum Of Three" not being featured in your working arrangements and contractual terms.

It also shows that contractors who wish to manage their IR35 status effectievly need to ensure day to day consistency with contractual terms.

Phil

[MPwannadecentincome]

Right of Substitution - one of the three key tests for IR35, the others being Direction and Control (D&C) and Mutualty of Obligation (MOO - more accurately Irreducible Mutuality of Obligation). The logic is that a permie cannot use a substitute, so if you can, potentially or in fact, you aren't an employee.

Snag is, HMRC and, increasingly, the judges are choosing to ignore such contractual rights, even when all parties are happy to abide by them and stick to their interpretation of the actual working arrangements, usually as explained by some disinterested HR wonk rather than the people actually involved in the engagement. That further muddies the already pretty muddy definitions used in IR35 cases: the sooner we are shot of it altogether, the better.

I think they are looking to see that the contract and the actual work arrangements match up - anyone can agree a contract - if the working arrangements do not match the ROS, D&C and MOO conditions and they can get proof / or you get stitched up - then they've got you.

[malvolio]

Right of Substitution - one of the three key tests for IR35, the others being Direction and Control (D&C) and Mutualty of Obligation (MOO - more accurately Irreducible Mutuality of Obligation). The logic is that a permie cannot use a substitute, so if you can, potentially or in fact, you aren't an employee.

Snag is, HMRC and, increasingly, the judges are choosing to ignore such contractual rights, even when all parties are happy to abide by them and stick to their interpretation of the actual working arrangements, usually as explained by some disinterested HR wonk rather than the people actually involved in the engagement. That further muddies the already pretty muddy definitions used in IR35 cases: the sooner we are shot of it altogether, the better.

[PhilAtBFCA]

Ros

Please excuse the question, but its a Friday.

What is ROS ( S=Substitution I guess )

Phil

[LisaContractorUmbrella]

I'd love to see the RoS position properly challenged. Show me an employee who has the contractual right to send in a substitute if they cannot work themselves...

AFAIK the only example extant is Dragonfly. There the RoS clause was inserted after he had started work in reponse to the then new IR35 legisaltion, so could well be considered to be a sham (as ewre several other contract clauses in that case). So I'm not sure a proper precedent was set.

In the Dragonfly case it was partly that the clause was inserted in an attempt to comply with IR35 legislation but it was mainly because the AA admitted under questioning that they would not, in reality, accept a replacement for the contractor without prior approval. The case also indicated a change of tack by HMR&C when Mr Justice Henderson quesioned whether it was actually possible for a 1 man limited company to operate a ROS at all.