Reply to: Legal advice: 'IR35 Fail' - what to do now?

[Hex]

You have other options. You could get another tax law firm to review it (e.g. Abbey Tax or QDOS). Both can offer you insurance against all tax and penalties if they review your case and reckon you're outside. Both require you to fill in their own working practices questionairres.

I would pick one of these two and see where you get to. If they do pass you and you take the insurance then it will not cost you that much compared to the probable tax you will pay by declaring yourself inside.

[Maxi Power]

Of course, your PCG membership will cover that eventuality anyway - you do have one, of course...

Of course!! Certainly wouldnt want to face an investigation without legal cover

[Maxi Power]

Thanks all for the words of advice. I guess the general feeling is that I probably shouldnt get too obsessed with the legal advice and should go with my own instinct. Only problem is like a lot of people i just really dont feel like I have a clear understanding of my position - i certainly believe myself to be offering my services to a client rather than being a disguised employee but i also feel like working on a daily rate means i have to expect a certain element of direction from the client. Where that leaves me i feel none the wiser. Im pretty sure im going to put myself outside IR35though and stick the money in a high interest savings account and hope for the best.

[ASB]

Yes I agree with you Lisa, but these remain important factors that will be first in line for consideration.

The 3 factors you mention are according to case law absolute. The issue is what HMRC will argue (sometimes successfully sometimes not) enables them to show those factors in the work of fiction they are in fact judging - i.e. the implied contract.

[LisaContractorUmbrella]

They are important factors but the following statement that you made was totally misleading and could lead new contractors into all sorts of trouble

"If any one of these is lacking then it is outside of IR35."

[Sally BFCA]

Actually Sally that is a very simplified view and not terribly accurate. Recent cases have shown that HMR&C consider many other factors - if your statement was true the contractor in the Dragonfly case wouldn't have failed.

Yes I agree with you Lisa, but these remain important factors that will be first in line for consideration.

[LisaContractorUmbrella]

For a contract to be caught by IR35 the three factors must be present (Moo, Control and Personal service). If any one of these is lacking then it is outside of IR35. I can't see why B&C have failed it. A letter of real arrangements regarding the how, where and when should cover it.

Actually Sally that is a very simplified view and not terribly accurate. Recent cases have shown that HMR&C consider many other factors - if your statement was true the contractor in the Dragonfly case wouldn't have failed.

[Sally BFCA]

For a contract to be caught by IR35 the three factors must be present (Moo, Control and Personal service). If any one of these is lacking then it is outside of IR35. I can't see why B&C have failed it. A letter of real arrangements regarding the how, where and when should cover it.

[LisaContractorUmbrella]

What, like a Confirmation of Arrangements letter, perhaps...

Yep absolutely. Just as long as it does confirm arrangements as is not written just to make it look like the contractor will be outside IR35 when in reality he would be inside; although I am sure that sort of thing never really happens

[d000hg]

As has been mentioned IR35 is all up in the air right now and could get better or worse... I think in your place I'd decalre myself out and set the additional IR35 money aside in a high-interest "DO NOT TOUCH" account.

[Not So Wise]

Unless you have zero common sense/ability to read these contracts ,review services are a useless waste of money unless they are guaranteeing to indemnify you for loses resulting from an “incorrect evaluation”, be it due to loss of contract by incorrectly failing a contract or loss resulting in hectors opinion differing from theirs.

And that’s not even taking into account that the actual working practices count more than contract at the of the day or as I prefer to view it, the contract can get you IR35 caught but only the working practices can set you free

[malvolio]

As Mal said it really is up to you what you do with the advice you have been given but my concern would be that the phrase used - "'Yes, where there are specific concerns" - is open to a great deal of interpretation. It could mean that the client would have a right to direct working practises if they were concerned about your standard of work at any time but it could also mean that they could direct you entirely when you were working on parts of the project that were of particular concern to them. As IR35 is dependent on your working practises and not what is written on paper I would ask them to be far more specific about the levels of control that they expect to have over what you do and the way that you undertake to do it.

What, like a Confirmation of Arrangements letter, perhaps...

[LisaContractorUmbrella]

As Mal said it really is up to you what you do with the advice you have been given but my concern would be that the phrase used - "'Yes, where there are specific concerns" - is open to a great deal of interpretation. It could mean that the client would have a right to direct working practises if they were concerned about your standard of work at any time but it could also mean that they could direct you entirely when you were working on parts of the project that were of particular concern to them. As IR35 is dependent on your working practises and not what is written on paper I would ask them to be far more specific about the levels of control that they expect to have over what you do and the way that you undertake to do it.

[BolshieBastard]

I wondered if anyone had any experience or thoughts on this. Apologies if its been discussed before, but a thorough search didnt seem to bring anything up...

My situation is that I felt that my new contract was in a grey area (when arent they i guess?) so to show HMRC, should it ever reach that stage, that I had taken due care I got B&C to review my contract. They said the wording of the contract was good, and passed IR35 however on reviewing the 'Confirmation of Working Arrangements' that they had suggested I also get my client to complete, they were happy with every area except one, which meant they advised me that I was 'IR35 fail'. The point they werent happy with was around the area of 'control' - specifically where the CWA asked whether the client had the right to instruct the service provider about working methods the client wrote 'Yes, where there are specific concerns'. I negotiate a lot of contracts with outside service providers myself and I would never willingly give up any such control, so dont really see why i should expect my client to do so, it doesnt mean they plan to micro-manage me (they pretty much leave me to totally get on with things on my own). And in terms of MOO and substitution they had no problem with giving me all the rights i could hope for.

Not sure therefore what to do now, I am extremely loathe to put myself inside IR35 but now i have been given this 'fail' opinion by someone considerably more qualified than i am to decide on such a thing, i am also nervous to put myself outside. Anyone had this issue or similar? Is there any chance that this could come up should i ever be reviewed by HMRC? If they ask me whether I ever sought legal advice i guess i would be in dangerous territory to deny it.

Despite what these professional review services tell you, the only people able to determine your IR35 status are, the tax commissioners (or whatever they are called nowadays) unless you go all the way to the High Court.

Just because a professional review service says you are a fail or pass doesnt mean the Tax Commissioners will agree.

I dont think I'd bother too much on this one.

[malvolio]

I wondered if anyone had any experience or thoughts on this. Apologies if its been discussed before, but a thorough search didnt seem to bring anything up...

My situation is that I felt that my new contract was in a grey area (when arent they i guess?) so to show HMRC, should it ever reach that stage, that I had taken due care I got B&C to review my contract. They said the wording of the contract was good, and passed IR35 however on reviewing the 'Confirmation of Working Arrangements' that they had suggested I also get my client to complete, they were happy with every area except one, which meant they advised me that I was 'IR35 fail'. The point they werent happy with was around the area of 'control' - specifically where the CWA asked whether the client had the right to instruct the service provider about working methods the client wrote 'Yes, where there are specific concerns'. I negotiate a lot of contracts with outside service providers myself and I would never willingly give up any such control, so dont really see why i should expect my client to do so, it doesnt mean they plan to micro-manage me (they pretty much leave me to totally get on with things on my own). And in terms of MOO and substitution they had no problem with giving me all the rights i could hope for.

Not sure therefore what to do now, I am extremely loathe to put myself inside IR35 but now i have been given this 'fail' opinion by someone considerably more qualified than i am to decide on such a thing, i am also nervous to put myself outside. Anyone had this issue or similar? Is there any chance that this could come up should i ever be reviewed by HMRC? If they ask me whether I ever sought legal advice i guess i would be in dangerous territory to deny it.

You've had advice. It's up to you what you do with it. You won't get penalised any differently whichever way you choose.

Personally. since IR35 is probably on its way out, I'd go with your gut view and stay out, if in your professional opionion your client is only using the same level of control you would apply to yourself anyway. And you don't need all three of RoS, MOO and D&C fully defined, a clear pass on one is actually sufficient to pas the employee test if the contract represents reality and if you have smart representation - should it ever get to that stage, which it probably won't. Of course, your PCG membership will cover that eventuality anyway - you do have one, of course...