Reply to: I have a contract but no work

[XperTest]

I think most of us agree with everything you say wholeheartedly. Especially this bit:

It's more a question of EBs and clients trying to avoid employee rights for us, but still treated us as employees, it's not about us trying to avoid tax. They are in the wrong (wanting their cake and eating it too) not us.

However how we decide to cope with this situation seems to be the main difference. You accept this legislation for what it is and try to work your way around it in "unnatural" ways, causing Vectraman to point out (correctly imo) that the way your company operates shouldn't be dependent on how the director/shareholder can optimise their personal tax situation. We say: look, this legislation is crap and unapplicable to IT contracting. We are not pseudo employees, nor do we want to be. On the other hand we are not all entrepreneurs and many of us don't want to be forced into pretending to be one. We are simply a flexible workforce, and in today's economy it looks like this will become everymore important, so Westminster sort it out..

[Denny]

One further thought on all this:

As a director of a company you have a responsibility to the company. It seems to me that if you change the way you work to ensure you're outside IR35, you're putting your personal tax position ahead of the best interests of the company, and if you're doing that then it's fair to say you're not acting as a true business. You're acting as an individual who is using the business for tax avoidance purposes..

What a load of bollocks.

For a start, being a limited company is intrinsically about working on your own terms according to the IR35 exemption criteria listed by the IR. How many limited companies that don't ever worry about IR35 and who have their own office premises and probably employ staff (most clients do this) do you know work on their own clients' sites and get treated like employee under the control of some psuedo boss? Only IT contractors and other office based one-man bands, it seems to me.

You are getting things in a real muddle. We are owner managed businesses, we are also forced by EBs to be limited company businesses (let's not forget that, as many would be happy to freelance as a sole trader) - either by using a brolly where we get fleeced for full tax, minus phoney dispensation allowances, pay an admin fee, have someone else control our destiny posing as a representive of us their 'in every sense of the word' employee - oh! and don't forget being fleeced for both employer and employee NI. Otherwise, we have our own limited. By default that means our commericial relationship with the client should reflect that reality in practice; its not for the EB and client to join forces to then set about perversing that proper commercial arrangement as they do by expecting us up to sign up to back-to-back or IR35 friendly (not back-to-back) terms that doesn't reflect what a limited company (or even freelancer, for that matter) is supposed to stand for. Working on your own account without MOO implied or otherwise, working where, how and when you like etc and using your own equipment when its possible to do so.

It's more a question of EBs and clients trying to avoid employee rights for us, but still treated us as employees, it's not about us trying to avoid tax. They are in the wrong (wanting their cake and eating it too) not us.

Likewise, the whole concept of limited company brollies is unheard of by acorn sized-one man band limiteds who became limited to gain a reputation in the marketplace with the intention of growing (the proper reason for having one). I even spoke with a tax adviser about brollies and when I explained to him what they were - not only had he not heard of them, he seemed disguisted by the whole concept of them. Brollies have grown out of the perversity of the client to EB to contractor officer worker relationship. They're merely there to reinforce that perversity. They certainly do not reflect what normal businesses would consider either rational or reasonable as a way of managing their tax affairs. Similarly, they wouldn't consider working on their own clients' site all day every day exclusively like an employee anything close to 'normal' business practice either.

Got it? No go on home, like a good boy!

[VectraMan]

One further thought on all this:

As a director of a company you have a responsibility to the company. It seems to me that if you change the way you work to ensure you're outside IR35, you're putting your personal tax position ahead of the best interests of the company, and if you're doing that then it's fair to say you're not acting as a true business. You're acting as an individual who is using the business for tax avoidance purposes.

If you are acting as a true business, then you'd act as if you as director and you as the person that actually provides the services are two different people. And you the director might reasonably expect you the employee to work full time hours and to do everything to keep the client happy with the service provided, even if that means working under the control of the client.

It's a very odd thing that we're selling our services as highly skilled individuals, yet the way we often work (paid per hour, no obligation to be available for work or for work to be provided) has more in common with unskilled casual labour.

[Denny]

I think 'grey' is working fine for a large number of contractors including myself. Virtually every contractor I know is effectively as you put it "working on site all day every day for set hours and client control with no real right of sub and implied MOO", and most of them I would hope realise that is the situation. I am making sure I have enough money in the bank to cough up in a worst case scenario and trying not to fret about the knock at the door. I have personally decided that is better than going the umbrella route and coughing up in advance.

If the PCG figures are correct then the vast majority of cases have been won ( and many repelled at NI investigation stage ) and I am sure by IR35 proofing your contract as best you can you are helping your cause.

Ultimately, every contractor has to decide for themselves what works best for them along with the advice form their accountant.

However, I still think the coughing up in advance option could work for many IT contractors. Apparently, if you do pay inside IR35, not knowing what your working conditions are, and then discover that you are outside after the contract starts, so that you can better ascertain what your working terms are in practice, you can claim the difference back. I assume however that you would need to be a limited co rather than go brolly.

Surely this is a safer option than not paying and then being clobbered further on down the road which could mean not just paying the tax owing, but also the investigation costs as well as any tax interest and surcharges added, which could be quite steep. As I mentioned before, the insurance to cover IR35 investigations and tax owing will only be useful to you if you can demonstrate that you were clearly duped in advance of what the commercial relationship was. If this was not tested before going on site, I doubt they would pay up.

All this debate is demonstating is how difficult it is to be a contractor in IT, or any sort of contracting for that matter, working in these 'grey' conditions. It's grossly unfair for any contractor to worry about all of this nonsense. However, please assume that I am being helpful, not a hinderance hell bent on trying to scare the tulip out of all of you for my own personal gratification. I am certainly not doing that. I, along with all of you, believe that the whole concept of IR35 is highly flawed and unconvincing. But I am a realist not an idealist, and use the IR criteria for working as a real business as my reference point, not the working conditions the client expects from IT contractors most of the time along with the advice given by contact reviewers who are, let's face it, on a money grasping roll with no notion of how the contract will pan out in practice. Unless they know this, their advice is pretty useless and won't help you very much.

I sometimes read the responses to my posts about this subject, and can't help feeling that most of you could well be living in cloud cuckoo land by shoring up problems for yourselves later on.

Let's hope I'm wrong.

[Lucy]

IT isn't plumbing though, and since when does working like a plumber define whether you run your own business or not?

Yes, I can't say it's helpful to compare ourselves with "hairy arsed plumbers, or builders" for that matter. A lot of us provide 'professional services' along the lines of KPMG, and working alongside them I see they have specific hours, need to be in the workplace, answer to a manager. I know they aren't independent contractors, but they certainly are a more valid comparison in some cases.

And anyway, I am sure if I asked a builder, plumber <insert hairy arsed tradesman here> to turn up at my house and wait around while I decided what they have to do they would still be sending me a bill at the end of the day.

[tim123]

If you look at the cases that have won IR35 you'll find, no doubt, that they do actually operate as real businesses or meet many of the criteria laid down by the Revenue. Out of the cases that have lost, and I've read a few, they all work like you describe above.

I can see that this is a big unknown.

It's all well and good the PCG (and others) going on about their success record against the IR, and people using this statistics to make statements that "any fool can avoid IR by changing their working practices"[1], but this is meaningless if we don't know how many people have been told "you haven't a chance, pay up". Of course, "business confidentiality reasons forbid us from telling you this latter figure".

I'm like VM. I do development, as part of a team.

I'm required to be at the client's site to do this, because I need access to hardware that it is impractical to have at home or access remotely.

And the manager needs me personally to complete the work, because (as I've said before) after the first few weeks, the most important thing that need to do the job *today*, is the accumulated knowledge of the software that has been written by the rest of the team whilst I have been working with them. The idea that someone could come in and represent me next Wendesday, and produce anything close to the same amount of output that I could, is complete bollux. Even if the contract says that I can sub, no manager is going to allow it.

So, how do I get out of IR35? (I'm not saying that it's impossible, I just don't believe it's as easy as, "1000s of other have")

[1] I'm reminded of the FAQ for a respected US contractors BB saying:
1) To be a computer contractor you MUST have <whatever that MS Certification thingy is>. Not all Computer Contractors do the same job and fit the same mold.

tim

[XperTest]

IT isn't plumbing though, and since when does working like a plumber define whether you run your own business or not?

[DeadKenny]

There's a chance we'll be screwed down the line, but the evidence of the PCG cases (actually 1,405 to 3) suggests it's extremely unlikely.

I guess he's saying that the rules could change and/or the IR gets better at winning cases and in which case we are all risking a lot when they can clobber you for back-tax.

Anyway, as far as I'm concerned I want to work in the way he suggests, and I want to be my own boss and work much like a plumber would. Not just for IR35 but because I'm fed up working for employers and corporates and having restrictions on how I do my job. The problem is if I just go out there and apply for contracts I won't necessarily get what I want. If I build up a reputation with clients then maybe I can negotiate what I want, but at the moment I'm just starting out and I don't have that option.


Oh, and would it be worth winding up the business every few years if you wanted to avoid back-tax? (I've heard that suggested before but not sure what the benefit of doing so is).

[shoes]

I am making sure I have enough money in the bank to cough up in a worst case scenario and trying not to fret about the knock at the door. I have personally decided that is better than going the umbrella route and coughing up in advance.

Bearing in mind how unworkable the IR35 rules are I think this is the most sensible and pragmatic approach. In my view, everyone in the uk has a moral obligation to pay as little tax as possible, in this way the extra cash we spend is doing some good and stimulating the economy, which is good for all of us. Giving it to this government is a crazy thing to do, they will waste it. We can spend it better than they can. Keep some back in case they come for it, but make them come for it ; Chances are, they won't. Don't waste your time jumping through hoops for this IR35 nonsense.

[rootsnall]

If you look at the cases that have won IR35 you'll find, no doubt, that they do actually operate as real businesses or meet many of the criteria laid down by the Revenue. Out of the cases that have lost, and I've read a few, they all work like you describe above.

It seems like you're doomed to chant the mantra 'I'm IR35 exempt but only because there's a good chance I'll get away with it.' That's hardly the same as actually having an IR35 exempt commercial relationship and potentially through the tedium and frustration of being invested with an eventual happy ending.

If I was an IT contractor working on site all day every day for set hours and client control with no real right of sub and implied MOO, then I would personally conduct all my tax affairs through a safe brolly, make the most of legit dispensaations, invest my PAYE earnings well and have done with it. At the same time I would also ensure that the EB contract gives a robust amount of protection from being screwed by the client or agency by remaining opted in.

You do yourself no favours at all by conjuring up IR35 friendly contracts, paying a fortune for B&C to screw you for contract review costs that mean nothing in practice, forking out for IR35 insurance (that surely won't pay up anyway if the commercial relationship wasn't properly tested in the first place), looking over your shoulder for the IR knock at the door, and giving the EB the freedom to screw you for payment or too many restrictions on trade, or the client to give you the right to terminate without notice. I would be looking at 28 days each way.

Think black and white, not grey (because grey looks suspiciously like mud from where I'm sitting).

I think 'grey' is working fine for a large number of contractors including myself. Virtually every contractor I know is effectively as you put it "working on site all day every day for set hours and client control with no real right of sub and implied MOO", and most of them I would hope realise that is the situation. I am making sure I have enough money in the bank to cough up in a worst case scenario and trying not to fret about the knock at the door. I have personally decided that is better than going the umbrella route and coughing up in advance.

If the PCG figures are correct then the vast majority of cases have been won ( and many repelled at NI investigation stage ) and I am sure by IR35 proofing your contract as best you can you are helping your cause.

[XperTest]

Think black and white, not grey (because grey looks suspiciously like mud from where I'm sitting).

There's no black and white in this though, only many greyscales. The fact of the matter is most of us don't work in exactly the same way as employees do. Due to market mechanisms discussed most aren't "real" businesses either. That is if you can even define what a real business is. If you look at the 8 or so requirements that the HMRC look at when determining inside or outside IR35 most of us will fulfil part of these requirements, not all or none. As somebody else explained, in my role as a test manager I can't decide when to come in or not. A large part of my work is being in meetings for one, another part is managing a team that needs to be managed when it's there not when it's most convenient for me. You could say this is a permanent position, and in many cases it is, but the fact of the matter is I don't have a permanent contract with any customer, just temporary ones, and I use professional communication to find new contracts. In theory I would be perfectly happy serving multiple customers in parallel but somehow customers are only interested in hiring me (temporarily) if they can get my undivided attention. Also, I don't think your argument with respect to hourly vs daily fee holds water. In a service industry where any planning is done on an hourly basis and where the market leaders charge hourly fees based on hour based time statements I don't think many customers would agree to daily fees alongside giving me the freedom to do the work as and when I feel like it. If I proposed that to stay outside IR35 they would most probably opt for another candidate. What you're saying is just because IR35 is so badly applicable to our industry (something we seem to agree on), it's safer to still adhere as much as you can even if this means damaging the chances of survival of your company. What I'm saying is that there is solid evidence that judges are not buying the IR35 logic either as its wording just contradicts much of what being self employed in the IT industry is about. I feel I could make a solid argument in court if I needed to, maybe you don't?

[HarryPearce]

I'm really worried about being shown the door if they realise I have absolutely nothing to do.

.

I'm glad I'm out of contracting. I had this done to me for around 10 years by multiple clients. One major American Bank, down near Buck Palace and named after a purple dinosaur, was the most stupifying. I was asked to provide support and then move on to a new development. After a while I noticed we were doing very little, but we kept heads down to look like we were doing something.

When another contractor became concerned about this he spoke to his TL, and recieved the following reply "If I have to give it to you to do I'll have to write an A4 page of instructuctions so I give it to my colleague X who I know knows exactly what I want doing and will do it quicker".

This went on for a good while until I was called into the managers office for what I presumed was a 'ticking off' and end of contract thank you. But the opposite happened "Would I like to renew?". When I said I would if there was work the manager sounded surprsied and said he'd investigate. A week or so later he came back saying "That's the way things are. Do you still want to renew?".

That said having gone into a permanent role which has required I build a position up for myself I have learnt that in many situations it's up to the individual to be proactive in finding work. Even in a contract position if you ask around there's always someone needing help who'd be glad to accept and if you use the undoubted social skills many a contractor has I'm sure idle time can be put to good use. Someone had to write Perl in their spare time after all!

Above don't sit doing nothing. It kills your morale and your much better off approaching your TL or line manager. Don't just assume they know what is going on. It will look better for you if act resposibly and maturely, just don't throw the dolly out of the pram.

[Forumbore]

Employment Business.

If you mean agency why not say it FFS?

[Denny]

I agree, in principle. But what you're suggesting is not the way most of us work, and most of us are able to work. I'm sure the uber-contractors here have moved on to fixed price contracts for multiple clients, and I managed it for a short time, but the reality is that most of us work for one client at a time, on site, and doing more of less full time hours because those are the contracts available. There's a chance we'll be screwed down the line, but the evidence of the PCG cases (actually 1,405 to 3) suggests it's extremely unlikely.

If you look at the cases that have won IR35 you'll find, no doubt, that they do actually operate as real businesses or meet many of the criteria laid down by the Revenue. Out of the cases that have lost, and I've read a few, they all work like you describe above.

It seems like you're doomed to chant the mantra 'I'm IR35 exempt but only because there's a good chance I'll get away with it.' That's hardly the same as actually having an IR35 exempt commercial relationship and potentially through the tedium and frustration of being invested with an eventual happy ending.

If I was an IT contractor working on site all day every day for set hours and client control with no real right of sub and implied MOO, then I would personally conduct all my tax affairs through a safe brolly, make the most of legit dispensaations, invest my PAYE earnings well and have done with it. At the same time I would also ensure that the EB contract gives a robust amount of protection from being screwed by the client or agency by remaining opted in.

You do yourself no favours at all by conjuring up IR35 friendly contracts, paying a fortune for B&C to screw you for contract review costs that mean nothing in practice, forking out for IR35 insurance (that surely won't pay up anyway if the commercial relationship wasn't properly tested in the first place), looking over your shoulder for the IR knock at the door, and giving the EB the freedom to screw you for payment or too many restrictions on trade, or the client to give you the right to terminate without notice. I would be looking at 28 days each way.

Think black and white, not grey (because grey looks suspiciously like mud from where I'm sitting).

[VectraMan]

I am not saying I agree with the IR's interpretation of what should be deemed inside or outside, all I am doing is trying to point out the reality of what they are currently expecting from contractors to be deemed real businesses, according to the criteria set out by the IR against the contactual obligations to fullfill a long term contract rather than fixed term deliverable work - like plumbers. This ensures that if an investigation should happen then you won't have an almighty battle on your hands and an insurance company who refuses to cough up the extra tax and investigation costs. True the IR have lost most cases, but that doesn't mean to say that things won't get worse and any tax owing can be up to six years worth. I would rather put preventative steps in place than anything else. I simply pointing out what I think it actually takes, given the IRs criteria, to be safely outside IR35 on their own terms, not mine.

I agree, in principle. But what you're suggesting is not the way most of us work, and most of us are able to work. I'm sure the uber-contractors here have moved on to fixed price contracts for multiple clients, and I managed it for a short time, but the reality is that most of us work for one client at a time, on site, and doing more of less full time hours because those are the contracts available. There's a chance we'll be screwed down the line, but the evidence of the PCG cases (actually 1,405 to 3) suggests it's extremely unlikely.