Reply to: sub-contracting / IR35 implications

[Craig@Clarity]

"ECR is in business on its own account. Elaine produced to the Tribunal copy business cards and company stationery. ECR operates from a dedicated business area at her home. It has company domain and website. ECR advertises its services and is a member of the PCG. It has retained reserves and invested in development and has over the years taken on fixed price work for a variety of clients."

Fundamentally, in the case of ECR, she won on the basis that there was a lack of requirement for her personal service and lack of MOO. The above formed part of the "painting the picture" so I agree with you.

[jamesbrown]

Seriously though, I agree they do refer to secondary factors in some cases but it always comes down to the 3 major factors of employee status.

Yep. But, as I say, it also appears as supporting information in real judgments (again, not centrally important to those judgments). Take ECR, for example:

"ECR is in business on its own account. Elaine produced to the Tribunal copy business cards and company stationery. ECR operates from a dedicated business area at her home. It has company domain and website. ECR advertises its services and is a member of the PCG. It has retained reserves and invested in development and has over the years taken on fixed price work for a variety of clients."

These aren't things that you'd go out of your way to demonstrate, but it would also be a little odd to not demonstrate them by default, as a real business.

[Craig@Clarity]

(i.e. the BETs .

Seriously though, I agree they do refer to secondary factors in some cases but it always comes down to the 3 major factors of employee status.

[jamesbrown]

To just clarify on this point that trying to demonstrate being in business on your own account isn't going to help or win an IR35 case at Tribunal.

Essentially, I agree. The "in business" factors appear to be emphasised more by HMRC than by case law (i.e. the BETs and associated case studies). However, for the same reason, I wouldn't completely dismiss them. Also, insofar as they create an overall picture of being in business, I think these additional factors can only be helpful in marginal cases, and judges routinely cite financial risk and other in-business factors in their judgments, even if they are not centrally important.

[Craig@Clarity]

Not sure I'm with you Craig - being in business on your own account in this way would prove that you're not employed surely?

I'm just saying that 'being in business on your own account' is not proving you're not employed. There's no basis in case law to support this.

As we all know, IR35 is based on a contract per contract basis. Having 2 simultaneous contracts does not mean your not employed. You could be deemed to be an employee on one and not the other. You can't escape this fact by law by arguing being business on your own account. There is no case to support this and doesn't remove the underlying facts of RMC (employee test) which all IR35 cases refer to and is the foundation.

[LisaContractorUmbrella]

Definitely. As soon as you sub, you demonstrate that there is a lack of requirement for your personal service. My point really was that being in business on your own account is irrelevant if you're trying to prove you're not employed at Tribunal. As you know, it all comes down to case law and the RMC case.

Not sure I'm with you Craig - being in business on your own account in this way would prove that you're not employed surely?

[Craig@Clarity]

I think that if you were working several contracts and had subcontractors working for you on all of them being outside IR35 would be a pretty safe bet

Definitely. As soon as you sub, you demonstrate that there is a lack of requirement for your personal service. My point really was that being in business on your own account is irrelevant if you're trying to prove you're not employed at Tribunal. As you know, it all comes down to case law and the RMC case.

[LisaContractorUmbrella]

To just clarify on this point that trying to demonstrate being in business on your own account isn't going to help or win an IR35 case at Tribunal. However, as you correctly point out, it's the 'holy trinity' that you need to look at to determine your employment status.

Thumbs up on the good understanding though

I think that if you were working several contracts and had subcontractors working for you on all of them being outside IR35 would be a pretty safe bet

[Craig@Clarity]

If you're working several contracts and subcontracting some work, this is circumstantial evidence that you're in business on your own account but, ultimately, each contract is treated separately w/r to RoS, lack of MoO and lack of D&C.

To just clarify on this point that trying to demonstrate being in business on your own account isn't going to help or win an IR35 case at Tribunal. However, as you correctly point out, it's the 'holy trinity' that you need to look at to determine your employment status.

Thumbs up on the good understanding though

[aoxomoxoa]

Ah yes, the NLUK "value add post of the day". A bit like this one really

[northernladuk]

Hi, I was wondering if anyone could provide me with some advice.

[TheFaQQer]

If the sub-contractor was working through their own limited company I can't see that there would be an issue

This.

If they are working through an umbrella then obviously that's not an issue. If they were working for your company as an employee then obviously it's not an issue. If they were working through their own company as a sub-contractor, then if they failed IR35 the additional tax (assuming they declared themselves inside IR35) would be between them and their limited company, nothing to do with yours.

[LisaContractorUmbrella]

If the sub-contractor was working through their own limited company I can't see that there would be an issue

[BlasterBates]

Subcontracting is a strong pointer to being a business. If you pass the "real business" tests they're far less likely to scrutinise any contract as you would be classified as low risk.

This a good thing to do to be outside IR35.

But I see the point if the sub-contractor you employ is inside IR35, whether you have a risk as well.

I would take advice on that.

[jamesbrown]

I'm not exactly clear what you're asking, but IR35 applies to each contract separately. Any liability on the new (or existing) contract should be viewed separately from your ability to subcontract on the existing (or new) contract. If you manage to successfully subcontract or, better, substitute for the existing (or new) contract, that would (almost certainly) place that contract squarely outside IR35. Note that there is a difference between subcontracting and substitution; both are positive for IR35, but substitution is definitive because you're sending someone as a direct substitute for your skills, to be paid via your company, and thus a requirement for personal service demonstrably does not apply. The new contract may be inside or outside IR35. If you're working several contracts and subcontracting some work, this is circumstantial evidence that you're in business on your own account but, ultimately, each contract is treated separately w/r to RoS, lack of MoO and lack of D&C. There is no potential liability on your company (w/r to IR35) on work that is done by the subcontractor.