Reply to: 11 Month Contract or IR35

[malvolio]

They don't. Same with all the other 'pointers' and the like discussed on here.

I'd be very surprised though if the cases that get investigated and then pursued are not slanted towards long contracts.

Are the IR staff involved not now on some form of incentive for how much extra tax they bring in ? Mal, do you know the answer to this ?

I think they're measured on success rate as much as gross recovery, whichis a far better measure of efficiency. Otherwise they'd only be talking to entrepeneurs and BigCo owners, wouldn't they.

[rootsnall]

How the hell would the revenue know whether MyCo has had 24 x 3 month contracts with 24 companies, or one 6 year gig at the same client? All they see is the Profit and Loss statement and the PAYE payments, they have no idea where MyCo's income is derived from.

FWIW I was investigated and at the time was near the end of a 5 year contract. The length of the contract was not mentioned.

They don't. Same with all the other 'pointers' and the like discussed on here.

I'd be very surprised though if the cases that get investigated and then pursued are not slanted towards long contracts.

Are the IR staff involved not now on some form of incentive for how much extra tax they bring in ? Mal, do you know the answer to this ?

[Archangel]

Long contract duration does increase risk of IR35 investigation. One only needs to study the cases where these investigations are started. Dragonfly Consulting Ltd spent years at the AA and got taken for 99k. There are many other similar examples. The longer the contract the fatter the target and therefore the more precautions you will need.

How the hell would the revenue know whether MyCo has had 24 x 3 month contracts with 24 companies, or one 6 year gig at the same client? All they see is the Profit and Loss statement and the PAYE payments, they have no idea where MyCo's income is derived from.

FWIW I was investigated and at the time was near the end of a 5 year contract. The length of the contract was not mentioned.

[BA to the Stars]

What is better:
1. To pay 40% on a lot or
2. Pay 0% on nothing

Net result is that 1 will always mean more money in your pocket, even if it is not as much as you would initially want.

Mal is right, why turn down guaranteed income unless you are certain you can have a non IR35 gig during that time

[malvolio]

Legally it is not relevant maybe, I have no idea, but being practical the IR stands to gain more from challenging a long contract than a short one for the same effort. To that extent a long contract may be more of a risk.

Perhaps. It makes pretty awful business sense to turn down a guaranteed income stream though...

[xoggoth]

Legally it is not relevant maybe, I have no idea, but being practical the IR stands to gain more from challenging a long contract than a short one for the same effort. To that extent a long contract may be more of a risk.

[Tensai]

this just shows up where a client doesn't know how to employ comtractors.

ClientCo recently sent out a note telling all contractors that they *must* work at the client site 5 days a week. Irony of ironies, it turns out that they are trying to prevent long-ish term contractors being seen as permies, and "working from home" is a permie privilege... irrespective of the IR35 implications such a diktat has for all the contractors.

I pointed all this out to them, and just got a stunned silence in return.... muppets....

[NickNick]

Long contract duration does increase risk of IR35 investigation. One only needs to study the cases where these investigations are started. Dragonfly Consulting Ltd spent years at the AA and got taken for 99k. There are many other similar examples. The longer the contract the fatter the target and therefore the more precautions you will need.

Playing devil's advocaat here somewhat, this just shows up where a client doesn't know how to employ comtractors. More than 2 years and the job should be a permie one and not a contract one. Hence it is correct that the person doing it pays an appropriate level of tax.

Remind me again, how did the AA do out of this?

NN

[malvolio]

The overal analysis may be correct, but if this was a single 3 or 6 month contract I do not think they (HMRC) would have bothered. Also would the result have been different if Dragon Fly had had 8 contracts of average 6 months over the 4 yr period with different clients. Would HMRC have started to investigate in the first place. I say again that that is unlikely.

It rather depends on why he was picked for the intial aspect inquiry - at random or becuaause of something astray in his history. It's all a bit State Secret but there is no real evidence that the value of contract is used as a selction criterion - although I agree it would make more sense if it did!

[Turion]

But simple duration is of no relevance, despite appearances. Afer all, is it not the sign of a good business that they retain the same profitable customer for an extended period?

Dragonfly didn't lose because he'd been there for a time, he lost because the commissioner was misled about the realities of D&C and RoS by the client's HR wonk who apparently chose to disregard the contract, and because the lower Agency/HisCo contract was not supported by the upper Agency/Client one (which is the real crime...)

The overal analysis may be correct, but if this was a single 3 or 6 month contract I do not think they (HMRC) would have bothered. Also would the result have been different if Dragon Fly had had 8 contracts of average 6 months over the 4 yr period with different clients. Would HMRC have started to investigate in the first place. I say again that that is unlikely.

[rawly]

Actually, this is a good question (If I do say so myself), and reflects my situation actually.

6 Months with Client A
6 Months with Client B
6 Months with Client C
12 Months with Client A

Now, if investigated, Each of those 4 periods is under a separate contract. Would HMRC investigate all 4 concurrently, or choose say Client A, which itself has 2 separate contracts. Do they choose just one contract or all of them. In which case dragging 4 contracts throught the legal system would be quite laborious I'd suspect! More so, I'd have thought, than if you'd just had 1 contract with Client A for 30 Months. I'd have thought that was much easier to 'cherry pick' - irrespective of whether duration is a factor or not.

Out of interest, what cases do we know of where multiple short duration contracts have been investigated? All the big one's that I seem to hear about are over 2 Years in duration, and in particular the one's that lost are well known and often referenced to on here... Or is this just because a 4 year contract losing you £99,000 is News worthy? But someone who was caught on a 6 month gig costing only £5,000 is just not worth reporting on!

[malvolio]

Long contract duration does increase risk of IR35 investigation. One only needs to study the cases where these investigations are started. Dragonfly Consulting Ltd spent years at the AA and got taken for 99k. There are many other similar examples. The longer the contract the fatter the target and therefore the more precautions you will need.

But simple duration is of no relevance, despite appearances. Afer all, is it not the sign of a good business that they retain the same profitable customer for an extended period?

Dragonfly didn't lose because he'd been there for a time, he lost because the commissioner was misled about the realities of D&C and RoS by the client's HR wonk who apparently chose to disregard the contract, and because the lower Agency/HisCo contract was not supported by the upper Agency/Client one (which is the real crime...)

[rootsnall]

I suspect your mate has been working for one of those companies that have a policy of ditching all contractors after a certain amount of time.
I worked for one that has such a policy - you can only work for them as a contractor for 51 weeks. Then you have to leave for a minimum of 3 months before returning.
There must be a belief out there that they are reducing any risk by doing this - they are definitely not gaining by it, because every 51 weeks they have to do a recruitment drive and retrain new staff. Must cost them loads each time. I know the team I was working for were not happy about it (the permies I mean) because they lose all the experienced guys and have to start all over again. Plus the workforce is downsized for a few weeks whilst they sort it out.

I suspect it might be due to some long term contractors claiming full time employment rights when it came to them getting the chop. It happened at a large pharma Co and to the best of my knowledge ( only hearsay ) some 'contractors' got pay outs when they left.

[ruth11]

I suspect your mate has been working for one of those companies that have a policy of ditching all contractors after a certain amount of time.
I worked for one that has such a policy - you can only work for them as a contractor for 51 weeks. Then you have to leave for a minimum of 3 months before returning.
There must be a belief out there that they are reducing any risk by doing this - they are definitely not gaining by it, because every 51 weeks they have to do a recruitment drive and retrain new staff. Must cost them loads each time. I know the team I was working for were not happy about it (the permies I mean) because they lose all the experienced guys and have to start all over again. Plus the workforce is downsized for a few weeks whilst they sort it out.

[Turion]

Long contract duration does increase risk of IR35 investigation. One only needs to study the cases where these investigations are started. Dragonfly Consulting Ltd spent years at the AA and got taken for 99k. There are many other similar examples. The longer the contract the fatter the target and therefore the more precautions you will need.