Rentacoder/Vworker, tax and IR35

[ASB]

Forget IR35, get a simple agreement in place with the worker if possible, make sure you receive proper invoices and carry on with your business!

+1

It shouldn't be too hard to do this. It doesn't necessarily need to be too formal, I mean email, description. response with an estimate, confirmation of final pricing, payment.

[TheCyclingProgrammer]

In the Business Entity Tests (http://www.hmrc.gov.uk/ir35/guidance.pdf which are about HMRC's "risk-based approach to checking customers' compliance with the intermediaries legislation commonly known as 'IR35'") the Assistance test on page 17 asks "Does your business engage any workers who bring in at least 25% of your yearly turnover?".

I think this matter is absolutely relevant.

It's only relevant if you're interested in scoring a few points on the BET which are generally bollocks and only act as a pointer to your risk of being investigated, not whether or not you are actually in or out.

The particular question you highlight doesn't even seem to relate to what you are asking. You haven't engaged somebody to directly bring in any extra revenue for you (i.e. you aren't billing clients for their time/using them as a sub), they are doing some work for you on a product the revenue of which has nothing to do with IR35.

So no, this has nothing to do with IR35 at all.

Forget IR35, get a simple agreement in place with the worker if possible, make sure you receive proper invoices and carry on with your business!

[northernladuk]

You're right. Interestingly HMRC's Business Entity Tests document (http://www.hmrc.gov.uk/ir35/guidance.pdf) says on page 11:



So IR35 is on a contract by contract basis (like you say), but the Business Entity Tests which they use to determine whether you fall inside or outside IR35 are not!

Interesting.

The tests are a rule of thumb to give them guidance as to whether or not to come after you. Very general, not legislation and not something they will hammer you with in court. The individual contracts, however, they will.

[Happy Hacker]

Just remember IR35 is on a contract by contract basis. One could be outside, one could be inside even if they are running in parallel. You would score well on the business entity tests having parallel streams of work though so bit less likely to be investigated.

You're right. Interestingly HMRC's Business Entity Tests document (http://www.hmrc.gov.uk/ir35/guidance.pdf) says on page 11:

Second, the business entity tests look at how your business works overall in order to gauge the risk that we will check whether IR35 applies to you. But, for the purposes of calculating PAYE and NIC under IR35, you need to consider each engagement separately.

So IR35 is on a contract by contract basis (like you say), but the Business Entity Tests which they use to determine whether you fall inside or outside IR35 are not!

Interesting.

[Happy Hacker]

I'm not sure what basis you pay him on.

Does he send you an invoice of any description? If so I guess you just pay it. The question is whether this places any responsibility on your co in the home country (unlikely, but possible).

However, the email trail may reasonably evidence the contract and payment.

In the absence of any invoice then it is likely to be simply regarded as a net wages payment by HMRC. If the guy is not UK resident (and this seems likely - but it's not impossible) then there is no UK tax or NI due. But you should really fill out the forms, employee him, get a tax code etc. (Of course doing this he will probably just tell you to bog off). There are obviously also potential implications on your company in his home country.

No, there aren't any formal invoices. I just email or IM him and we discuss what I want or if I found any problems with the last bit of work he sent me and then he comes back to me with more code. When he finishes a bit of work I'm happy with I ask him how much he wants to be paid, and then pay him.

If I showed my email/IM correspondance to HMRC do you think I would get in any trouble for not having a more official setup? If I had to jump through all those hoops I doubt I would have used this guy's services and would not be developing this product.

I'm not quite sure what any of this has got to do with IR35. IR35 relates to the contracts between you and your clients, not your suppliers.

Why are you worried about being caught by IR35? It's not relevant at all to the turnover derived from your product sales. It's only relevant to any services you might provide to a client and each one is evaluated on its own merits.

You do want to make sure that it couldn't be construed that you are acting like the freelancers employer but a contract outlining the work required, how much you will be charged for it and proper invoices should be more than sufficient.

How the supplier accounts for their tax in their own country is none of your business.

In the Business Entity Tests (http://www.hmrc.gov.uk/ir35/guidance.pdf which are about HMRC's "risk-based approach to checking customers' compliance with the intermediaries legislation commonly known as 'IR35'") the Assistance test on page 17 asks "Does your business engage any workers who bring in at least 25% of your yearly turnover?".

I think this matter is absolutely relevant.

[TheCyclingProgrammer]

I'm not quite sure what any of this has got to do with IR35. IR35 relates to the contracts between you and your clients, not your suppliers.

Why are you worried about being caught by IR35? It's not relevant at all to the turnover derived from your product sales. It's only relevant to any services you might provide to a client and each one is evaluated on its own merits.

You do want to make sure that it couldn't be construed that you are acting like the freelancers employer but a contract outlining the work required, how much you will be charged for it and proper invoices should be more than sufficient.

How the supplier accounts for their tax in their own country is none of your business.

[ASB]

I'm not sure what basis you pay him on.

Does he send you an invoice of any description? If so I guess you just pay it. The question is whether this places any responsibility on your co in the home country (unlikely, but possible).

However, the email trail may reasonably evidence the contract and payment.

In the absence of any invoice then it is likely to be simply regarded as a net wages payment by HMRC. If the guy is not UK resident (and this seems likely - but it's not impossible) then there is no UK tax or NI due. But you should really fill out the forms, employee him, get a tax code etc. (Of course doing this he will probably just tell you to bog off). There are obviously also potential implications on your company in his home country.

[jamesbrown]

If this is truly the situation then you're a product company not a PSC and thus happily outside IR35.

A "PSC", or any company for that matter, is neither inside nor outside IR35.

[northernladuk]

Just remember IR35 is on a contract by contract basis. One could be outside, one could be inside even if they are running in parallel. You would score well on the business entity tests having parallel streams of work though so bit less likely to be investigated.

[d000hg]

You are a PSC if the majority of your income is due to work you perform yourself, IIRC - there was a question about it on Intouch's SATR questionnaire but I can't remember the specifics.

If you hire someone directly then whether they count as an employee would depend on the working relationship and contract (if you have one). If you don't consider yourself equivalent to a window cleaner, why would you consider someone you hire to be?

[Happy Hacker]

I am not an expert but they way I see it is this, do you care if your window cleaner pays his tax bill after you have paid him for his service?

That's an interesting point. Hope you're right.

If this is truly the situation then you're a product company not a PSC and thus happily outside IR35.

If you do clientco contracts in addition, then you need to check each one of those for IR35 in the usual way.

I am doing clientco contracts too and I imagine this will be the main source of my company's income. Regarding your second question, I thought HMRC would be looking at all my activity, not each contract in isolation.

Isn't the employer still in some way responsible, in theory? I know IR35 broadly shifts the emphasis on the worker/employee but I still see clients keen to stipulate that they are NOT employing you.
Do the laws of this country come into play, or the laws in the worker's country, if you hire a freelancer abroad?

All that aside, don't these sites set things up so that you are actually paying vWorker/RentaCoder and they pay the worker? Surely that has an impact on things.

I was doing everything through vWorker, but then they were bought by Freelancer.com and the whole site went downhill in my opinion. For that reason I now communicate with and pay this guy direct. I hope SimonMac's comparison with a window cleaner is apt - that's a much easier way for me to think about things.

If I don't have to pay tax or do any other kind of bureaucracy or expense, I suppose I am quite happy for this situation to be known by HMRC. It can't hurt my claim to be outside IR35 can it?

[d000hg]

I am not an expert but they way I see it is this, do you care if your window cleaner pays his tax bill after you have paid him for his service?

If this is truly the situation then you're a product company not a PSC and thus happily outside IR35.

If you do clientco contracts in addition, then you need to check each one of those for IR35 in the usual way.

Isn't the employer still in some way responsible, in theory? I know IR35 broadly shifts the emphasis on the worker/employee but I still see clients keen to stipulate that they are NOT employing you.
Do the laws of this country come into play, or the laws in the worker's country, if you hire a freelancer abroad?

All that aside, don't these sites set things up so that you are actually paying vWorker/RentaCoder and they pay the worker? Surely that has an impact on things.

[aoxomoxoa]

On the other hand, showing HMRC that I develop products and am hiring someone to help would presumably be a strong indicator that I'm not a permanent employee in disguise.

Can anyone offer any advice?

If this is truly the situation then you're a product company not a PSC and thus happily outside IR35.

If you do clientco contracts in addition, then you need to check each one of those for IR35 in the usual way.

[SimonMac]

Hi all.

I'm still new to contracting and like everyone I'm trying to ensure that I don't fall inside IR35.

I have a piece of software that is being written by a guy I found on Rentacoder (now Vworker) and that I indend to eventually sell licences for. I have been paying him (from the odd couple of hundred pounds up to around a grand) as and when he finishes chunks of work and this has been going on for the last year or so.

My question is whether I need to be paying tax for this and make this official (I have no idea how this works). The guy is in eastern Europe (and outside the EU) and I imagine the costs of engaging with accountants/lawyers from his part of the world would be too expensive and time consuming for it to be worth the trouble. On the other hand, showing HMRC that I develop products and am hiring someone to help would presumably be a strong indicator that I'm not a permanent employee in disguise.

Can anyone offer any advice?

I am not an expert but they way I see it is this, do you care if your window cleaner pays his tax bill after you have paid him for his service?

[Happy Hacker]

Hi all.

I'm still new to contracting and like everyone I'm trying to ensure that I don't fall inside IR35.

I have a piece of software that is being written by a guy I found on Rentacoder (now Vworker) and that I indend to eventually sell licences for. I have been paying him (from the odd couple of hundred pounds up to around a grand) as and when he finishes chunks of work and this has been going on for the last year or so.

My question is whether I need to be paying tax for this and make this official (I have no idea how this works). The guy is in eastern Europe (and outside the EU) and I imagine the costs of engaging with accountants/lawyers from his part of the world would be too expensive and time consuming for it to be worth the trouble. On the other hand, showing HMRC that I develop products and am hiring someone to help would presumably be a strong indicator that I'm not a permanent employee in disguise.

Can anyone offer any advice?