Reply to: Newbie - About to start off as a contractor but I might be in the IR35?

[Platypus]

Bearing in mind my simple revenue stream, little to no expenses and the fact I will be making £38k in the year I assume, if I were to sit outside the IR35, setting up an ltd would be most cost efficient course of action?

In this case, I'd operate as a sole trader and save the bother (and expense) of a limited company (i.e. retaining an accountant).

At £38k per year you're facing 20% income tax vs. 20% corporation tax and small NI for zero NI.

On balance, I think you'd be better off as a sole trader, but I'd also run the numbers if I were you.

[jamesbrown]

Remember the basic elements of D&C: where, when, what and how. Working at home may help with the where (and possibly when), but teleworking isn't limited to foreign clients. It may be more difficult to conduct an investigation. Since when has HMRC been pragmatic?

It comes down to what is the best advice for someone with a similar arrangement to the OP. The best advice is to treat the scenario like any other and not to be complacent.

[TheCyclingProgrammer]

Thank you all so much for your responses. The overseas company does indeed not mind if I operated as a sole trader or under a ltd. So I would be able to get away with working as a sole trader.

I will indeed get a professional to look through the contract to make 100% sure I don't site inside the IR35.

You should. It's not hard to put yourself outside IR35 with the right contract and working practices, as long as the client is willing to play ball.

However you operate, make sure you get professional indemnity insurance and make sure it covers you (or YourCo) when working for your overseas client.

[TheCyclingProgrammer]

Logically, although the employer could give instruction, they are in no position to supervise or control what the worker is doing as they are not there to witness it. HMRC recognise this and have, for example, deliberately excluded workers who always work at home from the recent changes to the Agencies Legislation. As Platypus says - this is all opinion based on case law that's available.

I see where you are coming from but does being able to ignore said direction and control get you out of it that easily? If you are ignoring what the client says without good cause then I can't see the contract lasting very long...

[TheCyclingProgrammer]

Why can your employer not exercise direction and control just because they are overseas? They assign work, they tell you how to do it, you do it. I don't see how you can argue that just because they are overseas there can be no direction and control.

I agree. Even though working for an overseas client probably reduces the risk somewhat, it's perfectly possible for a client to exercise control and provide direction.

They could:

* Insist you use specific tools for no reason other than it's their policy (I.e. Not technical reason)
* Email you daily with a list of tasks to do with specific instructions on how to carry them out
* Insist you only work and take breaks at certain times
* Insist that all of your work is checked by other employees (beyond what I'd consider reasonable peer review)

These are just a few examples. I'd say if the client is treating you like a permie, then even if they are overseas there is a risk of being caught by IR35.

[Jessica@WhiteFieldTax]

Agree with Platypus and BB - if OP is working from home for a company based overseas there can be no SD&C so I can't see how there can be an IR35 issue

On a pragmatic rather than strict interpretation, I concur. Whilst conceptually IR35 could apply to a contract with an overseas company, pragmatically it would be very difficult for HMRC to prove the case.

However (a) OP needs to take personalised advice from an accountant or consultancy familiar with IR35 et al and (b) don't let the tail wag the dog - tax isn't everything.

[innocuousm]

Thank you all so much for your responses. The overseas company does indeed not mind if I operated as a sole trader or under a ltd. So I would be able to get away with working as a sole trader.

I will indeed get a professional to look through the contract to make 100% sure I don't site inside the IR35.

Bearing in mind my simple revenue stream, little to no expenses and the fact I will be making £38k in the year I assume, if I were to sit outside the IR35, setting up an ltd would be most cost efficient course of action?

[Craig at Nixon Williams]

IR35 is all about whether in the absence of the company you would be classed as self-employed (a sole trader) or as an employee, based on the terms of the engagement and the associated working practices. The three tests for IR35 (personal service, control and MOO) come from employment status cases, not IR35 cases.

If you are genuinely able to do the work as a sole trader (and your contract and working practices reflect this) then in theory you will be not be caught by IR35. As other have said, you should definitely get this checked by a professional though!

Craig

[DirtyDog]

Can IR35 apply to the self employed? If not, and the OP can be self employed, case closed.

Correct.

Whether that is the best tax position to take is a different matter, though. If you can argue that there would be no D&C (and I think it's an interesting point that if you work from home there can be no direction and control), then the OP would probably be better off being outside IR35 operating as a Ltd rather than working as a sole trader.

Depending on the country of origin of the client, I'd be looking for a bit more protection - eg. if the client is American, I wouldn't want to be operating with unlimited liability.

[LisaContractorUmbrella]

Why can your employer not exercise direction and control just because they are overseas? They assign work, they tell you how to do it, you do it. I don't see how you can argue that just because they are overseas there can be no direction and control.

Logically, although the employer could give instruction, they are in no position to supervise or control what the worker is doing as they are not there to witness it. HMRC recognise this and have, for example, deliberately excluded workers who always work at home from the recent changes to the Agencies Legislation. As Platypus says - this is all opinion based on case law that's available.

[Platypus]

Why can your employer not exercise direction and control just because they are overseas? They assign work, they tell you how to do it, you do it. I don't see how you can argue that just because they are overseas there can be no direction and control.

Can IR35 apply to the self employed? If not, and the OP can be self employed, case closed.

I can't help but feel that while I say "it seems to me this" others are saying "are no but HMRC that" and who is to say whose speculation is correct (because let's be honest, you're interpreting the rules one way and I'm interpreting them another).

[DirtyDog]

Agree with Platypus and BB - if OP is working from home for a company based overseas there can be no SD&C so I can't see how there can be an IR35 issue

Why can your employer not exercise direction and control just because they are overseas? They assign work, they tell you how to do it, you do it. I don't see how you can argue that just because they are overseas there can be no direction and control.

[malvolio]

Surely it is "would it be employment were it not for the intermediary". A rather differenf thing.

Not really. The intermediaries are ignored as being irrelevant.

Don't ever fall for the spin started by Dim Prawn. The intermediary companies, including YourCo, are a necessary part of the commercial arrangement and not, as HMRC would have everyone believe, an artificial construct.

[ASB]

IR35 is not about employment, it's about tax! All HMRC are interested in is taxing you as an employee, the rest of the relationship is irrelevant. Their test is "is the relationship between worker and the people paying him anything like that of a permanent employee?", nothing else .

Surely it is "would it be employment were it not for the intermediary". A rather differenf thing.

[LisaContractorUmbrella]

Agree with Platypus and BB - if OP is working from home for a company based overseas there can be no SD&C so I can't see how there can be an IR35 issue