Reply to: Contractors switching to a Consultancy to remain outside IR35

[krytonsheep]

They are now accepting them back through a consultancy as outside IR35

The legislation was supposed to prevent that happening...

"The new legislation will apply not only to employment agencies and employment businesses but also other types of business that supply workers to a public sector client, such as a consultancy or outsourcing specialist. The government thinks that if this broader definition were not applied, it would be relatively simple to avoid the effect of this change by restructuring contracts to be about service provision rather than a supply of a worker"

[Wobblyheed]

Experience from my recent gig at DWP. They have declared remaining 20 or so contractors all inside IR35 after being outside for the last 12 -18 months. They are now accepting them back through a consultancy as outside IR35
It's a joke...

[Paralytic]

Said consultancy is still classified as small company so exempt from coming legislation changes. Consultancy had officially communicated this to all their contractors and said they'd be able to continue to work as limited companies outside of IR35 due to them being small business. Everyone's happy.

For now...

I'm sure HMRC have rules around this and I suspect they'll come knocking in a few years (if not earlier).

[DZ2]

My main client had just decided to do just that. They hire lots of contractors through small consultancy, which charges the client and then pays contractors hourly rate (so whilst they are real consultancy with other clients and projects, they are acting more like an agency in this instance). Clients solution to IR35 changes is to change work with said consultancy to FSP model, where consultancy gets fixed price projects and keeps using all the same contractors. So for contractors, work will remain the same, though consultancy is moving to fixed deliverables and taking more risks.

Said consultancy is still classified as small company so exempt from coming legislation changes. Consultancy had officially communicated this to all their contractors and said they'd be able to continue to work as limited companies outside of IR35 due to them being small business. Everyone's happy.

I am a bit of anomaly there because I'm direct with the client (outside of IR35) and not involved with this consultancy or any of their people (though few of them are my good friends so I get all the news). The client has not officially confirmed what will happen to people like me but from informal chat with the hiring manager I don't think they won't be able to renew direct and will instead offer to go via this consultancy.

Now, I am absolutely certain this consultancy' working practices place all their contractors firmly inside IR35 (everyone there decided to ignore it and hope for the best); they are very hand on and in complete control, lots of performance reviews, ask to help on other clients projects etc. etc. So if I were to move there I'd close my Ltd and go via umbrella; yes it'll be income drop but not too dramatic as I don't have to travel.

Do you think such move is save from point of view of retrospective investigation? Assuming new contract is with consultancy, not mentioning any clients, work could potentially be with any of their clients but will mainly be for the current one.


On the other note my other client's new policy is not to renew any contractors going forward.

[Paralytic]

Um, I thought with an intermediary in place (consultancy/agency) the fee payer was the intermediary and it is that that is liable to ensure the taxes are collected should the client determine the role to be inside.

Yes, my bad - the client makes the determination, the fee payer deducts the tax if the determination is inside IR35. I'll correct my post.

However, it is the client who could be liable if an incorrect determination is made. See April 2020 changes to off-payroll working for clients - GOV.UK (Taking reasonable care when making a determination section)

[gables]

Apologies if I am misinterpreting something, but if their 3rd party suppliers use contractors, and it is the end client who would be liable for collection of taxes from an 'initially inside but later to be found outside' position, are we to believe that the client, in this case the bank, actually DO have the right to stipulate the Type of resources the 3rd party use?

Would consultancies' use of contractors have a bearing on the fears of an end client?

I might be a bit slow and behind the curve on this one...!

I think businesses can stipulate what they like in the supply chain, it is their business after all, now whether it's workable is a different question.

RBS?

I can see why this is the case. With the bank being the client/fee payer, wouldn't they have to make the IR35 determination and be liable if it was wrong?

I suspect Lloyds/Barclays are the same but just haven't made that sort of detail public yet.

Um, I thought with an intermediary in place (consultancy/agency) the fee payer was the intermediary and it is that that is liable to ensure the taxes are collected should the client determine the role to be inside.

[m0n1k3r]

Nope.

There's still an intermediary in between the client and the contractor. So the engagement would still need to be assessed by the client.

Depends on the size of the intermediary. There is a 'small intermediary' exemption.

[Paralytic]

If that was to be the case then you'd have to think this plays into the hands of big established consultancies with perm employees and will be tough for the already numerous independent consultancy type networks let alone anyone planning to start new consultancies.

Yes, its almost as if senior people at these big consultancies are part of the old boys network that schmoozes with senior civil servants and government officials!

This is the way of the world now. I can see attempts to change contracts to remove the end client as the fee payer - we'll have to see how that pans out.

[edison]

RBS?

I can see why this is the case. With the bank being the client/fee payer, wouldn't they have to make the IR35 determination and be liable if it was wrong?

I suspect Lloyds/Barclays are the same but just haven't made that sort of detail public yet.

If that was to be the case then you'd have to think this plays into the hands of big established consultancies with perm employees and will be tough for the already numerous independent consultancy type networks let alone anyone planning to start new consultancies.

[Paralytic]

It's the last one of the Big 4 to make an announcement so possibly....

Agency has started sending comms out today. Effectively the same as Barlcays/Lloyds. No contracts past end Feb, umbrella (or perm if offered) from then on.

[edison]

RBS?

I can see why this is the case. With the bank being the client/fee payer, wouldn't they have to make the IR35 determination and be liable if it was wrong?

I suspect Llloyds/Barclays are the same but just haven't made that sort of detail public yet.

It's the last one of the Big 4 to make an announcement so possibly....

[Paralytic]

Dave Chaplin is reporting that he has seen an internal confidential memo from a bank that states 'they are also not going to hire limited company contractors - from 28th Feb 2020.'

I'm presuming this is a new addition to Lloyds, Barclays, HSBC etc.

But it also says they will not be allowing any of their third party suppliers to use limited company contractors either. That will include consultancies, both large and small.

That seems to be an extreme risk aversion position. Is it really workable and will others follow?

RBS?

I can see why this is the case. With the bank being the client, wouldn't they have to make the IR35 determination and be liable if it was wrong?

I suspect Lloyds/Barclays are the same but just haven't made that sort of detail public yet.

[simes]

Apologies if I am misinterpreting something, but if their 3rd party suppliers use contractors, and it is the end client who would be liable for collection of taxes from an 'initially inside but later to be found outside' position, are we to believe that the client, in this case the bank, actually DO have the right to stipulate the Type of resources the 3rd party use?

Would consultancies' use of contractors have a bearing on the fears of an end client?

I might be a bit slow and behind the curve on this one...!

[edison]

Dave Chaplin is reporting that he has seen an internal confidential memo from a bank that states 'they are also not going to hire limited company contractors - from 28th Feb 2020.'

I'm presuming this is a new addition to Lloyds, Barclays, HSBC etc.

But it also says they will not be allowing any of their third party suppliers to use limited company contractors either. That will include consultancies, both large and small.

That seems to be an extreme risk aversion position. Is it really workable and will others follow?

[edison]

Once again it comes down to a few fundamentals that no-one seems to be willing to consider.

1. The client being honest about the type of resource they need
2. The contractor being honest about the type of worker they are
3. Appropriate contracts that reflect the nature of the engagement

It doesn't matter if the client uses an agency to do the leg work or decides to engage directly.

Exactly.

However, what is definitely happening in the market is an increasing number of small 'consultancies' or providers building large groups of contract associates and taking on the big consultancies. There are a few variants I've seen and I don't think this is due to IR35 per se. I do think it will continue to grow in popularity in specialist areas for more senior but less technical roles. It will be interesting to see if anyone can make the model work for more common roles like dev, PM/BA etc but I have doubts.