Reply to: IR35 confirmation / clarification

[pmeswani]

Sorry if this has now been answered as I didn't read the whole thread.

I made a compilation of all 2 year threads which got sticked and unstickied. Just a dump of all posts up to date. Maybe something in those will help?

2 year rule collated threads

Thanks for this. I vaguely remember this thread. If I had seen it before I asked the question (and it's my fault for not searching for it properly), I would have refined my question accordingly. However, my head normally hurts when I read some of the threads as it tends to give confusing answers.

[northernladuk]

Sorry if this has now been answered as I didn't read the whole thread.

I made a compilation of all 2 year threads which got sticked and unstickied. Just a dump of all posts up to date. Maybe something in those will help?

2 year rule collated threads

[LisaContractorUmbrella]

Thanks for this. If I am able to secure the contract, I will have to determine if the 2 clients are in the same geographical location. The timings would be different if I am going to stay in the exact same location, but not significantly (probably 10 to 15 minutes difference in terms of walking distance).

You don't need to worry at all Pmeswani - the 24 month rule won't apply to you at all as your total time spent on contract in Edinburgh will be, should you secure this new contract, 9 months; so unless you get an extension there isn't an issue for you

[pmeswani]

You're not being thick at all - 24 month rule is notoriously complicated. It wouldn't make any difference if you worked for a differen client but were in the same geographical location - if your daily journey did not significantly change the rule would still apply. With the example you have given you would be fine because your total time spent in Edinburgh would be about 9 months.

Thanks for this. If I am able to secure the contract, I will have to determine if the 2 clients are in the same geographical location. The timings would be different if I am going to stay in the exact same location, but not significantly (probably 10 to 15 minutes difference in terms of walking distance).

[LisaContractorUmbrella]

I know the 24 month rule applies to location, however the example you gave Lisa is for the same client. Would it make any difference if the client was different but in the same geographical location?

In my case (contrary to the examples I gave in my previous posts), I spent 3 months in Edinburgh, 9 months in Watford, 6 months in Brentford / Middlesex, and could end up with a 5 or 6 month contract in Edinburgh for a different client (in a different area). If I interpret the rules correctly, I should be ok. But the £1 million question is, would I be?

Sorry for being a bit thick.

You're not being thick at all - 24 month rule is notoriously complicated. It wouldn't make any difference if you worked for a differen client but were in the same geographical location - if your daily journey did not significantly change the rule would still apply. With the example you have given you would be fine because your total time spent in Edinburgh would be about 9 months.

[pmeswani]

Unfortunately that's where things get a little bit complicated - the 24 month period is rolling and, in these circumstances, the 40% rule would be applied. This is from HMR&C and may make things a little clearer:

EIM32108 - Travel expenses: travel for necessary attendance: the 24 month rule: breaks in attendance: example
An employee is employed as a human resources consultant. She works full-time at a client's site for 17 months developing a new staff appraisal system and then deals with unexpected priority work elsewhere for 3 months. She then returns to the client's site for a further 6 months to co- ordinate the roll-out of the new system, as had been planned from the outset of the project. A deduction is due for the full cost of travel from her home to the client's site for the first 17 months but no deduction is due for travel costs for the further 6 months.

The client's site is capable of being a temporary workplace because her attendance is for a limited duration, see EIM32075. For the first 17 months the client's site is not prevented from being a temporary workplace by the further rule explained in EIM32080. Her attendance is in a period of continuous work (she works there for 40% or more of her working time) but it is not expected at the outset that the period will exceed 24 months. So for the first 17 months the client's site is a temporary workplace.

For the further 6 month period the expectation has changed. She now expects to spend 40% or more of her working time at the client's site for a period that exceeds 24 months (17 + 3 + 6 = 26). Therefore, for the further 6 months the client's site is treated as a permanent workplace.

I know the 24 month rule applies to location, however the example you gave Lisa is for the same client. Would it make any difference if the client was different but in the same geographical location?

In my case (contrary to the examples I gave in my previous posts), I spent 3 months in Edinburgh, 9 months in Watford, 6 months in Brentford / Middlesex, and could end up with a 5 or 6 month contract in Edinburgh for a different client (in a different area). If I interpret the rules correctly, I should be ok. But the £1 million question is, would I be?

Sorry for being a bit thick.

[LisaContractorUmbrella]

Thanks Lisa. As I understand it that I can work in Edinburgh, for example, for 12 months, take 6 months off (or work for a different client) and then work for another 12 months in Edinburgh and should be ok. The other threads posted by Clare may indicate this should be ok.

Unfortunately that's where things get a little bit complicated - the 24 month period is rolling and, in these circumstances, the 40% rule would be applied. This is from HMR&C and may make things a little clearer:

EIM32108 - Travel expenses: travel for necessary attendance: the 24 month rule: breaks in attendance: example
An employee is employed as a human resources consultant. She works full-time at a client's site for 17 months developing a new staff appraisal system and then deals with unexpected priority work elsewhere for 3 months. She then returns to the client's site for a further 6 months to co- ordinate the roll-out of the new system, as had been planned from the outset of the project. A deduction is due for the full cost of travel from her home to the client's site for the first 17 months but no deduction is due for travel costs for the further 6 months.

The client's site is capable of being a temporary workplace because her attendance is for a limited duration, see EIM32075. For the first 17 months the client's site is not prevented from being a temporary workplace by the further rule explained in EIM32080. Her attendance is in a period of continuous work (she works there for 40% or more of her working time) but it is not expected at the outset that the period will exceed 24 months. So for the first 17 months the client's site is a temporary workplace.

For the further 6 month period the expectation has changed. She now expects to spend 40% or more of her working time at the client's site for a period that exceeds 24 months (17 + 3 + 6 = 26). Therefore, for the further 6 months the client's site is treated as a permanent workplace.

[pmeswani]

You have to have worked, or know that you will be working, at the same location for 24 months; so if you had a 12 month contract and then were offered an 18 month extension, at that point you would have to stop claiming travel and accomodation as you would be aware that the contract would extend beyond 24 months

Thanks Lisa. As I understand it that I can work in Edinburgh, for example, for 12 months, take 6 months off (or work for a different client) and then work for another 12 months in Edinburgh and should be ok. The other threads posted by Clare may indicate this should be ok.

[pmeswani]

IR35 isn't really affected by the location or time at the client site, although the longer you're with the same client the more likely it is that HMRC could argue MOO exists. If you cover one of the other two though (Substitution or Control) you should still be OK.

If you are not entitled to claim for the travel or subsistence costs then they would be a benefit in kind - so it would eaiser to simply not claim such costs through the company in the first place (allowable ones are OK of course). This includes food, travel and accomodation.

HMRC do have some examples for travel and the rules - EIM32080 - Travel expenses: travel for necessary attendance: definitions: temporary workplace: limited duration, the 24 month rule

Thanks for the link Clare. It looks like, unless I am mistaken, I should be ok as I have worked elsewhere during the 2 year period which means that I should not covered by the 40% rule in that given location.

[Clare@InTouch]

This topic seems to come up a fair amount. Have a read through the prior threads whcih should help:

http://forums.contractoruk.com/accou...ay-around.html

http://forums.contractoruk.com/accou...year-rule.html

[LisaContractorUmbrella]

Hi Lisa,

Thanks for the information. I have removed IR35 from the equation, what I am now confused about is the bit about the 24 month rule. Is it the case I have to work in the location (however HMRC defines it) for 24 months or worked in the same location within a 24 month period (i.e. 2 x 6 month contracts within a 24 month period)?

Up to now, I have ignored this topic as it never applied to any of my contracts.

You have to have worked, or know that you will be working, at the same location for 24 months; so if you had a 12 month contract and then were offered an 18 month extension, at that point you would have to stop claiming travel and accomodation as you would be aware that the contract would extend beyond 24 months

[Clare@InTouch]

If I am reading what you are saying correctly, IR35 isn't a factor with regards to location. I always get my contracts reviewed before I commit, but am just covering the what if part.

The bit about returning to a location is what is confusing me a bit. If, for example, I work in Brentford in Middlesex for 6 months, and then 12 months later go and work in Twickenham in Middlesex for 6 months, would I have to consider the 40% rule? If not, why not, if so why?

If I worked in Brentford in Middlesex for 6 months and then 12 months later went to work in Vauxhall for another 6 months, would I have to consider the 40% rule? If not, why not, if so why?

With regards to the 40% rule, if I submit all my expenses whilst within the 40% rule, do I then declare the 40% via the yearly Self Assessment?

You mention the travel costs attracting 40%, what about food and hotel costs? Do they attract the 40% rule as well?

Sorry for asking these silly questions, I should really know this already.

IR35 isn't really affected by the location or time at the client site, although the longer you're with the same client the more likely it is that HMRC could argue MOO exists. If you cover one of the other two though (Substitution or Control) you should still be OK.

If you are not entitled to claim for the travel or subsistence costs then they would be a benefit in kind - so it would eaiser to simply not claim such costs through the company in the first place (allowable ones are OK of course). This includes food, travel and accomodation.

HMRC do have some examples for travel and the rules - EIM32080 - Travel expenses: travel for necessary attendance: definitions: temporary workplace: limited duration, the 24 month rule

[pmeswani]

I think you are confusing two different bits of legislation Pmeswani - the length of time that you spend at one location or on one contract doesn't have any real bearing in terms of IR35; that will come down to the control, or lack thereof, that the client has over your working practises. You could, however, have an issue with the 24 month rule - if you work in the same location, or know that you will be working in the same location, for 24 months or longer you will no longer be able to claim travel and accomodation expenses. This rule has been refined fairly recently and now applies where there is no 'significant' difference between 2 locations - this means that you could be working for a different client, on a different site but if your journey doesn't significantly change the 24 month rule would still apply. Unfortunately 'significant' is subjective as it has not been defined by HMR&C

Hi Lisa,

Thanks for the information. I have removed IR35 from the equation, what I am now confused about is the bit about the 24 month rule. Is it the case I have to work in the location (however HMRC defines it) for 24 months or worked in the same location within a 24 month period (i.e. 2 x 6 month contracts within a 24 month period)?

Up to now, I have ignored this topic as it never applied to any of my contracts.

[LisaContractorUmbrella]

I think you are confusing two different bits of legislation Pmeswani - the length of time that you spend at one location or on one contract doesn't have any real bearing in terms of IR35; that will come down to the control, or lack thereof, that the client has over your working practises. You could, however, have an issue with the 24 month rule - if you work in the same location, or know that you will be working in the same location, for 24 months or longer you will no longer be able to claim travel and accomodation expenses. This rule has been refined fairly recently and now applies where there is no 'significant' difference between 2 locations - this means that you could be working for a different client, on a different site but if your journey doesn't significantly change the 24 month rule would still apply. Unfortunately 'significant' is subjective as it has not been defined by HMR&C

[pmeswani]

IR35 will depend on the working practices themselves, not the location or the client. Control, substitution and lack of MOO will be the determining factors. My suggestion would be to get the contract reviewed before you start, that way you can make a decision and have time to get the contract changed if it's not realistic.

The travel costs will be an issue if you've been at one location, or know you'll be there, more than 24 months. If you're returning to a location you've worked at before then you'll have to consider the 40% rule instead.

If I am reading what you are saying correctly, IR35 isn't a factor with regards to location. I always get my contracts reviewed before I commit, but am just covering the what if part.

The bit about returning to a location is what is confusing me a bit. If, for example, I work in Brentford in Middlesex for 6 months, and then 12 months later go and work in Twickenham in Middlesex for 6 months, would I have to consider the 40% rule? If not, why not, if so why?

If I worked in Brentford in Middlesex for 6 months and then 12 months later went to work in Vauxhall for another 6 months, would I have to consider the 40% rule? If not, why not, if so why?

With regards to the 40% rule, if I submit all my expenses whilst within the 40% rule, do I then declare the 40% via the yearly Self Assessment?

You mention the travel costs attracting 40%, what about food and hotel costs? Do they attract the 40% rule as well?

Sorry for asking these silly questions, I should really know this already.