Reply to: Hiring contractors and avoiding HMRC investigations

[Eirikur]

What I wont do is hire so called freelancers just because it gives them tax breaks so my question was around asking how recruitment agencies can tout the HMRC laws by claiming the people they provide are freelancers

Will you give them paid holidays? a pension plan? a bonus? fuel or car allowance? Paid time off when a family member dies? Paternity/maternity leave?
I guess not
What you want is cheap slave labourers

[Cirrus]

my question was around asking how recruitment agencies can flout the HMRC laws by claiming the people they provide are freelancers

In case you hadn't noticed, we live in the UK. Nobody obeys the law. They do whatever they can get away with, and here you can get away with a lot of things. Fifteen years ago HMRC said normal contractors are like employees so they should pay tax in a similar fashion. That was fairly clear except virtually everyone took the view that it only applied to everyone else but not them. They, obviously, were virtually indistinguishable from IBM and thus should be taxed as organisations not individual workers. HMRC then started proceedings against a token few of these mini-IBMs only to find there was no agreed or sustainable definition of what a freelancer is versus an employee. So they lost almost every one of their cases. So people thought "This is worth doing. Buy an insurance and QDOS will get me off in the unlikely event I am picked upon." So the contracting world carried on as before.

I suppose I should commend you on your law abiding stance but maybe you should move to somewhere like Germany where you stand a chance of finding any similar-minded people.

[Zigenare]

If you could get off your high horse and actually ready what I am saying, I am trying to ensure true freelancers are treated as such and employees disguised as freelancers are rooted out, I have over 100 freelance trainers whom are genuine and we work together in the right way.

What I wont do is hire so called freelancers just because it gives them tax breaks so my question was around asking how recruitment agencies can tout the HMRC laws by claiming the people they provide are freelancers

Do you understand why, historically, contractors use Limited Companies?

[Cirrus]

Like breaking the speed limit.

we would rather act in accordance with HMRC guidelines. Whats wrong with that?

Nothing wrong with that except all the rest of the world isn't and they're not having the problems you are.

Forget second guessing the Revenue. Go to your agency and get the bums-on-seats developers you need. The agency will bloat up the contracts with all sorts of lies and nonsense, but you won't become a public pariah because - I'll say it again - everybody does it

[malvolio]

Actually they are for many contractors I've interviewed (although those breaks were far higher in the past). They want to "go contracting" only because their "take home" (which implies using the company as just a tax-efficient pass-through vehicle for putting all the money into their own pocket, leaving nothing in the company) is a bit higher whilst at the same time looking for long-term, multiple-year contracts for "employment safety" and "peace of mind".

People that "want to go contracting" and "want long-term job security" are not the same set as "people who are contractors from choice", nor are they "people who fully understand what contracting is about"

[Hobosapien]

Get ahead of the curve (likely changes to private sector to bring in line with current public sector rules) and tell the agencies that you are offering only inside IR35 work (from next year, depending on what is said in the upcoming chancellor budget statements, there's a strong chance this determination will be on you anyway as the client) and that any candidates they send for interview are operating via the agency's payroll or an umbrella company, so the agency can provide proof that the contractor will be paying all the taxes HMRC expect under IR35.

The rate you need to pay will likely be higher than what true freelancers on a b2b arrangement would be willing to accept but that's the price of offloading the employers tax and risk to the contractor with an agency wanting their cut for a disguised employee.

Currently HMRC would only likely be chasing the client for any taxes if they took on contractors that were self-employed (so client may be liable for the missing employment taxes), which is why many choose to put an agency in the middle who will not allow contractors to operate self employed (or they would then be liable for employment taxes when HMRC caught up with them).

If you can't find developers willing to work for you directly under PAYE you are likely not offering enough, or are in a location where the commuting distance pool is too small.

[m0n1k3r]

And as an aside, those tax breaks are not the reason most people freelance anyway

Actually they are for many contractors I've interviewed (although those breaks were far higher in the past). They want to "go contracting" only because their "take home" (which implies using the company as just a tax-efficient pass-through vehicle for putting all the money into their own pocket, leaving nothing in the company) is a bit higher whilst at the same time looking for long-term, multiple-year contracts for "employment safety" and "peace of mind".

[m0n1k3r]

Thanks all

Yes agree, hiring people and having a clear agreement of how they should work with us is the solution but my issue is the hiring managers will continue to treat them as part of the team.

The are not specialists, they are developers who sit alongside our employee developers and work as part of agile methodology so each person chooses what they will work on that day and their work is heavily supervised.

Supervised in what way? Do you tell people how to write code or are they bringing their own skills and experience for doing so, collaborating with the customer and with other third party suppliers? Or are you merely referring to daily standups, sprint reviews, retrospectives, sprint planning and such, which technically fall under the heading of governance and not supervision.

Few undertakings are small enough that a small supplier can deliver them alone. Collaboration is to be expected.

They are given work each day, not a brief with a dedline so again, we control the work and how and when its done

Then you are not using an agile methodology. Agile developers are supposed to pull work from the (sprint) backlog.

We cannot allow them have other clients or take holidays during a sprint, this is a business need so goes against the freewill issue.

It is a contract issue. Having Cap Gemini (for example) as a supplier would be no different.

We would rarely allow them substitute and its takes around 6 weeks to get up to speed with our platforms and network so pointless.

This is the sticking point. What if they would bring in a substitute to work alongside the leaving person, at no cost to you, for six weeks so as to transfer knowledge and get fully up to speed, would you still not allow a replacement? Would you do the same if the supplier was CGI instead of a small supplier?

Ignore me using the term IR35, I know its only public sector etc

IR35 comes into play whenever an owner-employee of a third party, limited company supplier (owning ≥ 5% of the shares) is treated as a bona fide employee of the customer, with performance reviews, 360's etc, regardless of the sector. It is just that the IR35 regulations are applied slightly different in the public sector for now.

[malvolio]

If you could get off your high horse and actually ready what I am saying, I am trying to ensure true freelancers are treated as such and employees disguised as freelancers are rooted out, I have over 100 freelance trainers whom are genuine and we work together in the right way.

What I wont do is hire so called freelancers just because it gives them tax breaks so my question was around asking how recruitment agencies can tout the HMRC laws by claiming the people they provide are freelancers

Yes, I get that, I honestly do. We also tried to explain how to do so, but if they way you work doesn't allow that option then you have a problem.

Accept that freelancers are fully independent, work with them on a B2B basis - even if they Self Employed - rather than as an individual and a lot of your problems go away. If you can't do that, then you are stuck with either agency-style temps or FTCs. Or people gaming the system...

And as an aside, those tax breaks are not the reason most people freelance anyway, but if you look on them correctly as compensation for carrying the risk of late- or non-payment and abrupt terminations, plus the lack of benefits, pensions, sick pay and training that any employee has, plus their costs of working outside an employment envelope and they might make more sense.

[Jerrymouse1968]

That said, it's your business and making life difficult for us real freelance workers is not your problem.

If you could get off your high horse and actually ready what I am saying, I am trying to ensure true freelancers are treated as such and employees disguised as freelancers are rooted out, I have over 100 freelance trainers whom are genuine and we work together in the right way.

What I wont do is hire so called freelancers just because it gives them tax breaks so my question was around asking how recruitment agencies can tout the HMRC laws by claiming the people they provide are freelancers

[malvolio]

Advice which you are not taking...

er I called HMRC and that is the advice they gave so not sure why you phrase your response in this way

I can lie and pretend they are freelancers and hope HMRC dont check up on us (given we are a global well know media company, it wont be long) but we would rather act in accordance with HMRC guidelines. Whats wrong with that?

Well you don't appear to understand IR35 and HMRC are not a good source of impartial advice on using temporary staff anyway.

Given you are in the media world, then your "freelance" is a different beast to the ones we normally refer to, and unlike you we would not distinguish between freelance and temporary resource. What you appear to be saying is you want extra resource on demand but not at the cost of providing them with employment rights and benefits while treating them as employees in all but name. That is something we have been strongly against for many years now, and will continue to do so. HMRC's failure to accept that some 30% of the UK workforce are not any kind of employee doesn't help.

That said, it's your business and making life difficult for us real freelance workers is not your problem.

[Jerrymouse1968]

Advice which you are not taking...

er I called HMRC and that is the advice they gave so not sure why you phrase your response in this way

I can lie and pretend they are freelancers and hope HMRC dont check up on us (given we are a global well know media company, it wont be long) but we would rather act in accordance with HMRC guidelines. Whats wrong with that?

[malvolio]

Thanks all

Yes agree, hiring people and having a clear agreement of how they should work with us is the solution but my issue is the hiring managers will continue to treat them as part of the team.

The are not specialists, they are developers who sit alongside our employee developers and work as part of agile methodology so each person chooses what they will work on that day and their work is heavily supervised.

They are given work each day, not a brief with a dedline so again, we control the work and how and when its done

We cannot allow them have other clients or take holidays during a sprint, this is a business need so goes against the freewill issue. We would rarely allow them substitute and its takes around 6 weeks to get up to speed with our platforms and network so pointless.

Ignore me using the term IR35, I know its only public sector etc I am just referring to the overall online HMRC questions they ask and the general premise around freelancers.

thanks for advice

Advice which you are not taking...

Your temporary workers are firmly and inescapably caught by IR35. If you are not giving them appropriate contracts and ensuring they are either through an umbrella or, if through their Ltd Co, paying in accordance with IR35's provisions then you may get a call from HMRC. You may anyway, since HMRC are looking closely at the whole marketplace. IF that scares you, don't use temporary staff.

Or. of course, you take them on under FTC conditions which avoids all such problems, other than finding people to hire.

You can of course take on temporary staff with a clear statement of work that will put them outside IR35 and still delivers what you need. But first you will have to look at your business model, your approach to using contractors and what it is you are trying to achieve.

[Jerrymouse1968]

Thanks

Thanks all

Yes agree, hiring people and having a clear agreement of how they should work with us is the solution but my issue is the hiring managers will continue to treat them as part of the team.

The are not specialists, they are developers who sit alongside our employee developers and work as part of agile methodology so each person chooses what they will work on that day and their work is heavily supervised.

They are given work each day, not a brief with a dedline so again, we control the work and how and when its done

We cannot allow them have other clients or take holidays during a sprint, this is a business need so goes against the freewill issue. We would rarely allow them substitute and its takes around 6 weeks to get up to speed with our platforms and network so pointless.

Ignore me using the term IR35, I know its only public sector etc I am just referring to the overall online HMRC questions they ask and the general premise around freelancers.

thanks for advice

[m0n1k3r]

Im completely baffled by this whole area. I completely understand MOO, control and supervision and all the rules around being a genuine freelancer.

Because we do not engage with workers in this way and because I do not want to risk any HMRC fines I am only hiring PAYE developers but these are like unicorns it appears.

The UK is quite unusual among European countries in that the customer (e.g. you) rarely ever gets fined in the case of disguised employment. Almost the entire burden is on the suppliers (e.g. the freelancers).

One thing to bear in mind though is that the term "worker" actually has a specific meaning - temporary staff under PAYE or through a temporary work agency. They are people under the command & control of you, so they are not independent freelancers.

In countries such as Germany, the penalties are stiff and applies to both the customer and the supplier. For that reason, German contract sites such as gulp.de (it's not available in English) makes a very clear distinction between "jobs" ('worker' - temporary PAYE staff) and "projects" (freelancers, who receive contracts with defined deliverables, specific services etc).

The term 'contractor' can unfortunately mean both.

When the agencies keep pushing me on my reasons for dismissing sole traders, people with limited companies and umbrella companies, I explain anyone looking at the IR35 regulations or HMRC online test would clearly see we are not treating people like freelancers.

Are you sure? If you hire junior developers, then your managers might have to tell them how to program and how to do their jobs. If you engage with more senior developers, then you most likely hire them because of their experience, knowledge and insight into a specific field, and few people or nobody within your organisation is able to tell them precisely how to do their jobs. They qualify as freelancers, regardless of whether they work in teams with other freelancers or permanent staff or alone.

So am I the only person in the UK having this issue? Am I missing something ? I spoke to one agency and the legal team who actually said "oh dont worry we get around the HMRC by having wording in contract and just warning clients and contractors about this area !!!!!!!) Another young recruiter said he had to ask his boss what PAYE was

Can anyone shed light on this area as feel I am going nuts, meantime the IT directors are so mad at me as I cant find them staff !!

Where can I find regular

You won't be able to for the simple facts that (a) agencies tend to favour either long-term permanent roles or short-term contract roles for those with limited companies, and (b) the tax code in the UK still makes it easier to draw a high income with minimum taxes for those with limited companies, although that is gradually being eroded away, causing more and more developers to consider working under PAYE.

The remedy is to forget about the agencies and their bias, and instead post job adverts where it makes sense, and to consider perhaps adding an item or two about deliverables and accountabilities to the contracts you provide.