Reply to: Contractual Status and IR35 Change

[Ketto]

Personally i’d be off.

[Protagoras]

Right move, if they flip from outside to inside mid-engagement no option but to go in my view.

The prevailing view at the introduction of off-payroll was that it was a bad idea to transition from contractor-determined 'outside' to client-determined 'inside'. It was certainly my view. That didn't stop lots of people from doing it!

But now, a few years down the road, if a post Ch.10 contract was client-assessed as 'outside' and is re-assessed on extension as 'inside' then, absent any liability transfer clauses, is this necessarily still in the 'no-option' category?

One could agree the appropriate rate rise for 'inside' and carry on; the risk that the earlier part of the engagement is established as 'inside' is the surely the client's risk ...

[Ketto]

I had this happen with a client recently, had to leave to make a point, but it was one of my best contracts going on 20 months and was guaranteed for at least another 9 months.

Their reasons were completely spurious for wanting to switch from Outside to Inside and that combined with "possibly" a 10% rate uplift meant it was no longer tenable. Shame because it was a great gig.

Right move, if they flip from outside to inside mid-engagement no option but to go in my view.

[ensignia]

I had this happen with a client recently, had to leave to make a point, but it was one of my best contracts going on 20 months and was guaranteed for at least another 9 months.

Their reasons were completely spurious for wanting to switch from Outside to Inside and that combined with "possibly" a 10% rate uplift meant it was no longer tenable. Shame because it was a great gig.

[Protagoras]

Out of interest, in a long multi-extension gig how often do people prompt the client to reassess the SDS if the client aren’t initiating it themselves? Every extension, annually, never?

For a Ch.10 engagement it's the client's responsibility. Unless there's a liability transfer clause, I can't see why a contractor would raise the matter.

[Ketto]

Out of interest, in a long multi-extension gig how often do people prompt the client to reassess the SDS if the client aren’t initiating it themselves? Every extension, annually, never?

[jamesbrown]

I didn't read it like that. I read he's started under outside, within the first payment cycle they've switched to inside. He's asking if it can be honoured because he's not understood they are within their rights to change it. He's hanging on to the outside contract but that's now gone as part of the SDS process, not through contractual clasuses and processes.

IR35 status can switch from outside to inside at any moment (i.e., at any moment their judgement of the facts changes), assuming this is Chapter 10 (which it is, if there's an SDS), including within the first payment cycle. They do need to issue an SDS before the first payment is made. The SDS can change. The rest is a contractual issue, i.e., termination clauses, timeframes etc. Another legal requirement is that the client has a formal status disagreement process in case you disagree with the SDS, but that is pretty worthless because it is, er, client-led.

[PerfectStorm]

I had exactly this problem with a public sector client (DM me and I can furnish you with details/compare notes)

I was able to convince them that they couldn't change status quite so quickly, and also made the point that I wasn't comfortable with going from outside to inside on the same contract, as I felt it would give rise to questions about the work to-date if I kept on going. I left, outside status intact.

[northernladuk]

Status can change at any time, it changes with the facts. An SDS must be issued timely, though, which is probably what you mean. Sounds like the OP's question is more about contractual arrangements and how to ensure a contract is honoured.

I didn't read it like that. I read he's started under outside, within the first payment cycle they've switched to inside. He's asking if it can be honoured because he's not understood they are within their rights to change it. He's hanging on to the outside contract but that's now gone as part of the SDS process, not through contractual clasuses and processes.

[Protagoras]

Doesn't the end client get a window at the beginning of a contract to decide if it is Inside or Outside?

Yes, and my understanding is that that's up to payment of the first invoice.

Now that OP has advised that this was a renewal, which commenced in May, I think this then raises the question of whether this was a 'new contract' or an agreement to extend the old contract on the same basis.

If this is a 'new' contract and the May invoice represents the first one under the contract, I think the Consultancy is entitled to issue a revised SDS for the engagement.

[jamesbrown]

Been awhile since we've had a in outside/inside question but I believe teh status can be changed before payment of first invoice. We've had a number of contractors fall foul of this one.

Here is post from someone in exactly your situation the sums up the situation with links to gov legislation

https://forums.contractoruk.com/ir35...t-started.html

Status can change at any time, it changes with the facts. An SDS must be issued timely, though, which is probably what you mean. Sounds like the OP's question is more about contractual arrangements and how to ensure a contract is honoured.

[northernladuk]

Been awhile since we've had a in outside/inside question but I believe teh status can be changed before payment of first invoice. We've had a number of contractors fall foul of this one.

Here is post from someone in exactly your situation the sums up the situation with links to gov legislation

https://forums.contractoruk.com/ir35...t-started.html

[SussexSeagull]

Doesn't the end client get a window at the beginning of a contract to decide if it is Inside or Outside?

[nick w]

Thanks for the replies
Here is some more information

How long have you had that contract? That might be relevant to what Protagoras said about the SDS. However, I agree that it's dodgy behaviour for them to backdate the change. Out of interest, does the new contract increase your daily rate (to reflect the IR35 change)?

I had a 12-month renewal agreed back in March, due to start in May.
The inside-IR35 rate is an increase from the previous outside-IR35 rate.

Let's imagine that 2-3 weeks means "May", rather than just the last week at the end of May, and was it a suggestion or a statement? Perhaps you thought it was just a general "suggestion", but they were advising you.

That’s a good question. There was some general suggestion in conversations that we might be moving to an inside-IR35 setup, but it was never confirmed or stated formally. There was no definitive notice like “You are now inside IR35.”

So, they've informed you that you need to sign a new contract and you say they haven't informed you of that, or are you saying that when they informed you, you didn't consider it to be a formal notice?
When did they first "suggest" the the contract was going to "shift to inside"?
When did they first inform you that you would need to sign a new contract?

On 12th May, I was informed that the consultancy was appealing the determination that the engagement was inside IR35.
Over the following weeks, we were told that the appeal decision was still being chased.
Then on 2nd June, we were told that the consultancy would be arranging contracts with the umbrella company.

I asked explicitly this week whether May would be paid outside IR35, and was told no — it would be paid inside.

So, it's not one month (i.e. May) but May and June.
And if we're going to be pedantic, contractors terminate their contract, they don't resign.

Yes — I’ve now served the agreed 4-week contractual notice, as required for both consultant and service provider, to formally terminate the contract.

[WTFH]

I'm always a bit cynical about the stories that have side notes and vague date ranges, for which I apologise.

Over the past 2–3 weeks, the consultancy has suggested that the arrangement might shift to inside IR35.

Let's imagine that 2-3 weeks means "May", rather than just the last week at the end of May, and was it a suggestion or a statement? Perhaps you thought it was just a general "suggestion", but they were advising you.

The consultancy has informed me that I will need to sign a new contract with the umbrella company in order to be paid for May

...

I have received no formal, written notice of any change to my contract

So, they've informed you that you need to sign a new contract and you say they haven't informed you of that, or are you saying that when they informed you, you didn't consider it to be a formal notice?
When did they first "suggest" the the contract was going to "shift to inside"?
When did they first inform you that you would need to sign a new contract?

I handed in my resignation on Monday, giving the required four weeks' notice

So, it's not one month (i.e. May) but May and June.
And if we're going to be pedantic, contractors terminate their contract, they don't resign.