Reply to: Potential full-time contract (inside IR35)

[GazCol]

In this case, the client is looking to take on an employee. The OP is taking the "contract" on the understanding that they are an employee of the company. Given those, I'd suggest that a confirmation of arrangements is absolutely NOT what you want in this case.

The "client" wants to avoid paying the costs of having a UK operation with genuine employees, so gets the UK-based staff to work as contractors. Contractors take the work and make out that they aren't employees of the client, so the government take is reduced.

And we wonder why the government introduces legislation like IR35 and we end up in massive debt as a country.

I think it's for this reason that, from my one experience at least, that they only wanted to deal with sole traders rather than Ltds.

[jamesbrown]

In this case, the client is looking to take on an employee. The OP is taking the "contract" on the understanding that they are an employee of the company. Given those, I'd suggest that a confirmation of arrangements is absolutely NOT what you want in this case.

The "client" wants to avoid paying the costs of having a UK operation with genuine employees, so gets the UK-based staff to work as contractors. Contractors take the work and make out that they aren't employees of the client, so the government take is reduced.

And we wonder why the government introduces legislation like IR35 and we end up in massive debt as a country.

If they are the facts, they would likely be borne out. If the relationship is one of "disguised employment" under the terms of IR35, then that's what it is. The point of a CoA, and any due diligence for that matter, is to provide the evidence needed to demonstrate an outside position (and to avoid penalties for not assessing risk). It would be a risky proposition to knowingly work inside, regardless of where the client is based.

[DirtyDog]

In general, I think it's valuable to have a Confirmation of Arrangements as a true reflection of your working practices, as that would probably be the default reference for a canned response, along with the contract. Otherwise, just treat this as an ordinary UK client and take the proper precautions with a contract review and appropriate working practices.

In this case, the client is looking to take on an employee. The OP is taking the "contract" on the understanding that they are an employee of the company. Given those, I'd suggest that a confirmation of arrangements is absolutely NOT what you want in this case.

The "client" wants to avoid paying the costs of having a UK operation with genuine employees, so gets the UK-based staff to work as contractors. Contractors take the work and make out that they aren't employees of the client, so the government take is reduced.

And we wonder why the government introduces legislation like IR35 and we end up in massive debt as a country.

[Old Greg]

Well yes, good point well made. But what power does HMRC have to make this happen? If the client answers "refer to contract" or simply simply fails to respond then the case is dead in the water.

Written communication is much more likely to be blanked or met with a stock response. Even if they do get answers then I'm guessing that it would be admissible at a tribunal in full rather than the selective evidence from a one-to-one interview.

Still low risk in my unqualified opinion, but I'd be interested to know if HMRC do sometimes allow IR35 to proceed to tribunal where they have been unable to directly interview the client.

With an overseas contract, it may be worth at contract negotiation stage to suggest some changes, and present it in part as protecting the end client from any risk that the contractor may be able to claim employment rights.

[jamesbrown]

I don't think that working for a foreign company necessarily provides a larger degree of protection since, for the purposes of IR35, the test is whether you're effectively an employee of the end client in the absence of the intermediary and the liability is with your UK company (to HMRC). It's a hypothetical test and doesn't rely on any wider legal context (such as whether you are, in fact, eligible to be an employee of the end client in the foreign jurisdiction). That's my take, anyway.

That being said, I do concur with the above on the practical difficulties of pursuing a case, but I wouldn't rely on those. The client would tend to provide a canned answer or not respond unless they were compelled to do so (in theory, I suppose HMRC could try to pursue via the US authorities, but it's doubtful). In general, I think it's valuable to have a Confirmation of Arrangements as a true reflection of your working practices, as that would probably be the default reference for a canned response, along with the contract. Otherwise, just treat this as an ordinary UK client and take the proper precautions with a contract review and appropriate working practices.

[jmo21]

I’ve never seen this happen so not sure how this would work if it was tested but having thought about it I can’t see why HMRC would even challenge IR35. If they did make a successful IR35 challenge it would prove that he would be an employee in the USA, in this circumstance he would get taxed in the USA and the only bit of tax that the UK government would receive would be the difference between the US and the UK tax (if the US tax is lower – I don’t know the ins and outs of their system enough to know).

Perhaps a more important thing to consider would be any US tax laws which stop you from doing this because they are potentially losing quite a lot of revenue as a result of operating through a UK company.

Just a few thoughts…
Craig

The OP is talking about working physically in the UK for the US company though.

[Craig at Nixon Williams]

I’ve never seen this happen so not sure how this would work if it was tested but having thought about it I can’t see why HMRC would even challenge IR35. If they did make a successful IR35 challenge it would prove that he would be an employee in the USA, in this circumstance he would get taxed in the USA and the only bit of tax that the UK government would receive would be the difference between the US and the UK tax (if the US tax is lower – I don’t know the ins and outs of their system enough to know).

Perhaps a more important thing to consider would be any US tax laws which stop you from doing this because they are potentially losing quite a lot of revenue as a result of operating through a UK company.

Just a few thoughts…
Craig

[DirtyDog]

Well yes, good point well made. But what power does HMRC have to make this happen? If the client answers "refer to contract" or simply simply fails to respond then the case is dead in the water.

Written communication is much more likely to be blanked or met with a stock response. Even if they do get answers then I'm guessing that it would be admissible at a tribunal in full rather than the selective evidence from a one-to-one interview.

Still low risk in my unqualified opinion, but I'd be interested to know if HMRC do sometimes allow IR35 to proceed to tribunal where they have been unable to directly interview the client.

I would guess that if a company gets a letter from a foreign tax authority, then they will respond sharpish and accurately - particularly if they have a UK presence of any kind which could be threatened!

If the client is refusing to confirm or deny anything, then it makes your defence harder (IMHO) - it shouldn't but I'd bet it does!

[Contreras]

If only there was a way they could put their questions down on a piece of paper and somehow distribute that paper to the client. If someone invents such a mechanism, the shares in the company that does the distribution would rocket if they were ever sold!

Even better would be if there could be some kind of electronic method of communication, but it'll never catch on

Well yes, good point well made. But what power does HMRC have to make this happen? If the client answers "refer to contract" or simply simply fails to respond then the case is dead in the water.

Written communication is much more likely to be blanked or met with a stock response. Even if they do get answers then I'm guessing that it would be admissible at a tribunal in full rather than the selective evidence from a one-to-one interview.

Still low risk in my unqualified opinion, but I'd be interested to know if HMRC do sometimes allow IR35 to proceed to tribunal where they have been unable to directly interview the client.

[DirtyDog]

Fair point about IR35. I hadn't even considered that it would be anything other than inside.

To me it was a given but having said that, said company is well known for being extremely hands off with their employees; you can choose what you work on, on your on terms, in whatever hours suit you with very little D&C.

I imagine the contract would fail on MOO and probably RoS too so relying one just one factor (D&C) might be risky.

Should anything come of this I will definitely get it reviewed.

If HMRC ask the client "is he an employee or a contractor?", what answer are the client going to give? If they are going to see you as an employee, then you are going to be hard pushed to defend that in an investigation.

[DirtyDog]

Also assuming the contract paperwork is in order, for HMRC to successfully pursue an IR35 investigation they'd need to interview the client. For an overseas client that makes it pretty low risk I'd say.

If only there was a way they could put their questions down on a piece of paper and somehow distribute that paper to the client. If someone invents such a mechanism, the shares in the company that does the distribution would rocket if they were ever sold!

Even better would be if there could be some kind of electronic method of communication, but it'll never catch on

[Contreras]

I would have thought this is outside IR35. If you're using your own equipment & location and able to specify your own working hours (?) then you're on to a good start.

Also assuming the contract paperwork is in order, for HMRC to successfully pursue an IR35 investigation they'd need to interview the client. For an overseas client that makes it pretty low risk I'd say.

[d000hg]

I would have thought this is outside IR35. If you're using your own equipment & location and able to specify your own working hours (?) then you're on to a good start.

If they want you to be an employee but find it easier to do the paperwork as a contractor, you might as well go the whole hog and ask about holidays, insurance, etc.

[jamesbrown]

Fair point about IR35. I hadn't even considered that it would be anything other than inside.

To me it was a given but having said that, said company is well known for being extremely hands off with their employees; you can choose what you work on, on your on terms, in whatever hours suit you with very little D&C.

I imagine the contract would fail on MOO and probably RoS too so relying one just one factor (D&C) might be risky.

Should anything come of this I will definitely get it reviewed.

Not really, providing the contract is strong on lack of D&C and this is backed-up by working practices (remember, it's what, where, when and how). Lack of D&C is particularly important and defensible (having only lack of MOO might be a little riskier, for example).

Do remember to check out the insurance angle too, as you'll be pretty stunned at insurance costs/difficulty for NA (and you really want Ltd. liability, as I mentioned). Check out the PCG forums for more info. on insurance options.

[TheCyclingProgrammer]

If it's the US company I think it is, do they not prefer for you to invoice direct as a sole trader rather than a Ltd?

No idea. Would rather not discuss who it is on here but feel free to PM me as I'd be interested to know.