Reply to: Public Sector and determined as outside - better than before ?

[TheFaQQer]

I've just had a call from higher up at the agency where they are saying that despite the role being deemed outside IR35 by the tool the fact that I am not opting out of the regulations means I want to be treated like a worker and therefore there is a risk I could be within IR35 and the agency may therefore have to do the payroll tax thing as a result.

To be fair at first I thought this was just the agency trying another tactic to get me to opt out but they are also saying they are happy to adjust the opt out contract so it matches the regulations around going back to the client and payment being made without signed timesheets/payment from client which for me were the two main reasons to not opt out.

So I'm of a mind to just go with the opt out and get those clauses in the contract but I'm interested in opinions on an outside IR35 contract and whether the opt out or not impacts the status in the Public Sector. At first I was very skeptical on any relationship being valid but the more I talked with the agency the more convincing they were that at the very least they could have a valid reason to deem me as a 'worker' and therefore they have to make tax payments on my behalf

They aren't allowed to make deductions from your invoice unless you give them the legal authority to make those deductions. If the client has confirmed that you are outside IR35, though, they are taking the risk if you are subsequently found inside.

If I was in your position, I would get the clauses included in the contract and opt out - that gives you everything you need, removes the uncertainty around the opt out status, plus it means that you would be able to argue anything that happens in the future based on pure contract law rather than needing to argue around opt out status as well.

[northernladuk]

Whichever way you go should have no impact at all on your IR35 status. Plenty of articles around offering that opinion such as...

Opt in, opt out? What the agency regs are all about (part 2) :: Contractor UK

I would hazard a guess they want you to opt out purely for their own reasons and nothing to do with helping you. Personally I wouldn't be putting a gig at jeopardy over opt out/in status but nothing wrong with you standing firm if the agency are playing silly buggers. That said be mindful that the agency can refuse to deal with contractors that don't want to opt out quite legally. Cojak and SueEllen looked in to this and I think the outcome was that it is a business decision and not discrimination.

[contractor abc]

Thanks for the replies and an interesting discussion ensued.

I now have a further issue that I didn't expect to arise. As a matter of course I don't opt out of the Agency Regulations and normally after a bit of a fight the agency backs off and lets things go through without the opt out being signed. I thought I was at that post-fight stage with this gig but .........

I've just had a call from higher up at the agency where they are saying that despite the role being deemed outside IR35 by the tool the fact that I am not opting out of the regulations means I want to be treated like a worker and therefore there is a risk I could be within IR35 and the agency may therefore have to do the payroll tax thing as a result.

To be fair at first I thought this was just the agency trying another tactic to get me to opt out but they are also saying they are happy to adjust the opt out contract so it matches the regulations around going back to the client and payment being made without signed timesheets/payment from client which for me were the two main reasons to not opt out.

So I'm of a mind to just go with the opt out and get those clauses in the contract but I'm interested in opinions on an outside IR35 contract and whether the opt out or not impacts the status in the Public Sector. At first I was very skeptical on any relationship being valid but the more I talked with the agency the more convincing they were that at the very least they could have a valid reason to deem me as a 'worker' and therefore they have to make tax payments on my behalf

[Hobosapien]

Legally, they must give an explanation for the determination within 30 days of asking for it.

...

Fingers crossed that you get the outside determination (with increase!) - there are quite a few people who got no increase at all because "it's only fair, and giving you an increase defeats the whole point of the rules".

The agency asked for the explanation without me pushing them, so not sure their motivation.

As it is I'm fine with being inside on the higher rate as it's likely only for a few months (though all contracts start out that way) so I figured I'd plough as much as I can into a pension (via umbrella so gets done after minimum wage but before additional tax calculations) to offset some of the additional taxation from being inside.

To be fair on the PS I think they're 'happy' to give the rate increase as my role is different to before, more consultation on some systems I was last contractor/developer standing when originally built, so they need to pick my brains on major upcoming changes. Not sure how such a role stacks up against the indicators for being inside/outside IR35, though when I used the HMRC tool based on my guesses of how the role will work, it said I was outside despite the client saying I was inside due to not being allowed to provide a substitute (the tool took that on the chin so substitution isn't a definite inside indicator alone). So will be interesting if nothing else to see what happens with the agencies query on the determination.

[TheFaQQer]

Which is why some PS clients have and maybe still are doing blanket inside determinations. Play safe and keep it simple. Just up the rates where possible if they find a shortage of willing contractors.

Funny enough I've started my current inside IR35 PS contract (blanket deemed inside from what I can establish) but the agency are still awaiting facts of the determination as they have queried why it's inside. So there's an outside 'dream-on' chance the agency may manage to get me an outside determination, hopefully at the same much higher inside rate.

Legally, they must give an explanation for the determination within 30 days of asking for it.

LDU argued against the NHS that a blanket decision was illegal because it failed the duty of care part of the law, so it's always worth highlighting this. In some circumstances, it might be possible for a PSB to argue that blanket decisions for particular roles is allowed (eg. a blanket decision that says that all their first line support staff are treated as inside IR35, or a blanket decision that says that all business analysts working on specific projects are outside), but I don't think that such a broad NHS determination (everyone is inside) would be able to justify meeting the duty of care provision in the Finance Act.

Fingers crossed that you get the outside determination (with increase!) - there are quite a few people who got no increase at all because "it's only fair, and giving you an increase defeats the whole point of the rules".

[Hobosapien]

Which is why some PS clients have and maybe still are doing blanket inside determinations. Play safe and keep it simple. Just up the rates where possible if they find a shortage of willing contractors.

Funny enough I've started my current inside IR35 PS contract (blanket deemed inside from what I can establish) but the agency are still awaiting facts of the determination as they have queried why it's inside. So there's an outside 'dream-on' chance the agency may manage to get me an outside determination, hopefully at the same much higher inside rate.

[BoredBloke]

But surely the onus is on the PS body to periodically check the status. If the tool or working practices change to put the contractor inside, then such a significant change should mean that the contract would need to be renegotiated. If HMRC come knocking and the contractor has an outside determination then it's still the client who should be responsible. Not sure what would happen to all the monies charged as expenses to that point which an inside determination doesn't allow.

[eek]

Nobody has to use the ESI - the client has to make a determination of the status, but using HMRC's tool is not mandatory, they could use the Contractor Calcuulator one, or ask Qdos, or ask the contractor, or cast bones for all it matters as long as they make a determination. Any changes to the assessment tool do NOT change the law or anything set by precedent - and nothing has significantly changed there for a while now.

Where things could get very interesting is if someone gets an inside determination from the tool and then challenges that status at tax tribunal, but I suspect that most people would walk rather than wait the months decade to be proved right.

ftfy

[TheFaQQer]

So how come the HMRC assessment tool has changed at least once that I know of since it went live?

Nobody has to use the ESI - the client has to make a determination of the status, but using HMRC's tool is not mandatory, they could use the Contractor Calcuulator one, or ask Qdos, or ask the contractor, or cast bones for all it matters as long as they make a determination. Any changes to the assessment tool do NOT change the law or anything set by precedent - and nothing has significantly changed there for a while now.

Where things could get very interesting is if someone gets an inside determination from the tool and then challenges that status at tax tribunal, but I suspect that most people would walk rather than wait the months to be proved right.

[Hobosapien]

Every assessment of IR35 status is made according to the rules and case law, whether that's inside or outside public sector.

The rules for determination are only changed by law or legal precedent, nothing else.

So how come the HMRC assessment tool has changed at least once that I know of since it went live?

[TheFaQQer]

Can't see it being anywhere near bullet proof when you have HMRC making up the rules for determination as they go along (changes to the tool questions and result), the client having to use HMRC's rules to make a determination, and the agency (if not direct) having to foot any tax bill if the determination of outside is subsequently deemed to be inside.

Yep, all straightforward and nothing to worry about.

Every assessment of IR35 status is made according to the rules and case law, whether that's inside or outside public sector.

The rules for determination are only changed by law or legal precedent, nothing else.

[Hobosapien]

Can't see it being anywhere near bullet proof when you have HMRC making up the rules for determination as they go along (changes to the tool questions and result), the client having to use HMRC's rules to make a determination, and the agency (if not direct) having to foot any tax bill if the determination of outside is subsequently deemed to be inside.

Yep, all straightforward and nothing to worry about.

[TheFaQQer]

But what happens about the OP and working practices slipping back inside? The last significant case I remember was JLJ where it started inside but though part and parcel and taking his eye off the ball it fell inside. HMRC have shot themselves in the foot if the determination is final over the duration of the entire contract and they cannot come in and investigate if it's still outside further down the line surely.

If he became part and parcel the client would still be responsible? I understand it's for the client to make the determination and stick to it but a contractor is also able to turn a good outside gig in to an inside one as well? Zero come back on the contractor at all?

Even if all the above is squarely in the clients lap I'd still not be comfortable ever using the term 'bullet proof' when it comes to IR35. I'd still be putting the effort in to keep myself out but maybe that's just old habits dying hard.

The client is responsible for determining the IR35 status. If they get it wrong then the legislation is clear - the liability sits with the fee payer.

If the status changes during the duration of the contract (and JLJ started outside then moved inside) then it remains the responsibility of the client to assess the status of the contract and ensure that correct taxes are deducted. If they fail to do that then the liability still sits with the fee payer.

[Gomez]

I still don't get how these public sector clients can be happy making accurate determinations of status without understanding how the potential supplier operates (financial risk generally). It must be that they are happy that substitution is OK because that generally makes the HMRC tool bail out early with an 'Outside' determination.

[northernladuk]

You are right - the client has made the assessment that you are outside. If the assessment is wrong, then the fee payer (it doesn't even go to the client, unless you are direct) is liable for their error.

So you have the certainty that you can operate in a genuine B2B arrangement and cannot be caught for IR35 for this engagement.

But what happens about the OP and working practices slipping back inside? The last significant case I remember was JLJ where it started inside but though part and parcel and taking his eye off the ball it fell inside. HMRC have shot themselves in the foot if the determination is final over the duration of the entire contract and they cannot come in and investigate if it's still outside further down the line surely.

If he became part and parcel the client would still be responsible? I understand it's for the client to make the determination and stick to it but a contractor is also able to turn a good outside gig in to an inside one as well? Zero come back on the contractor at all?

Even if all the above is squarely in the clients lap I'd still not be comfortable ever using the term 'bullet proof' when it comes to IR35. I'd still be putting the effort in to keep myself out but maybe that's just old habits dying hard.