Reply to: Where are the rules that clients will use to determine your IR35 status?

[northernladuk]

Please please please read up and make sure you know what you are doing when you speak to your client. Get it wrong and you are going to do yourself and your client more damage than help. We've had some awful comments from people that should know more about IR35 and were going to speak to their clients and I know some people at my client were trying this via agencies and some of the stuff they said in office was scary.

If you aren't very well versed then it might be better you send them some links/literature and introduce them to a company that offers a service like QDOS to help them rather than trying to lead it from the front.

[gorses]

I will be taking this opportunity to educate the client now, or I will only extend up 'til Feb/Mar and then take a stand.

Yep me too. Albeit educating them to what they've already signed up to, engaging my LtdCo. not me. To be fair to them they do understand and agree to this point, they're just mystified as to what the fuss is all about and why my personal tax is their business.

To be honest I was surprised the CEST immediately finished after the substitution question, was expecting a deeper analysis.

[The Dogs Bollocks]

The wording of the question isn't helpful - "Yes - we have the right to reject a substitute for any reason, including if it would negatively impact the work" - what client in their right mind would say yes, we're happy to negatively impact the work.

There might be other issues that might lead to a client rejecting substitution even when it is included in the contract, e.g. national security

[mudskipper]

If I go to the CEST and fill it in as if I was the client the 3rd or 4th question is regarding the right to substitution.
If I choose positively ( as per my agreed contract ) the tool immediately finishes with an IR35 does not apply message.
Why would the client then be concerned with any other measures, advisors etc..?

The wording of the question isn't helpful - "Yes - we have the right to reject a substitute for any reason, including if it would negatively impact the work" - what client in their right mind would say yes, we're happy to negatively impact the work.

[ChimpMaster]

If I go to the CEST and fill it in as if I was the client the 3rd or 4th question is regarding the right to substitution.
If I choose positively ( as per my agreed contract ) the tool immediately finishes with an IR35 does not apply message.
Why would the client then be concerned with any other measures, advisors etc..?

Because they are ignorant, scared, uneducated, risk averse, uninterested, apathetic.

Take your pick.

I'm in a similar position to you and am due for renewal soon with a chance that the contract will then go into April next year. I will be taking this opportunity to educate the client now, or I will only extend up 'til Feb/Mar and then take a stand.

[gorses]

If I go to the CEST and fill it in as if I was the client the 3rd or 4th question is regarding the right to substitution.
If I choose positively ( as per my agreed contract ) the tool immediately finishes with an IR35 does not apply message.
Why would the client then be concerned with any other measures, advisors etc..?

[WordIsBond]

The chance of an uninformed end client making a "correct" decision based on a limited (or no) understanding of the rules, is probably as good as two experts agreeing. The end client will "know" in their heart of hearts whether they see their business as employing a worker or buying a service. That is however also a decision that will be influenced by a whole swathe of motives including understanding what sort of risk - financial and otherwise - a decision either way will bring.

And, the person who will "know" in their heart of hearts often won't even be the one making the determination -- at best, they'll be consulted on it.

[WordIsBond]

So this is why I mistakenly subscribed to the idea that HMRC must have published a logical set of rules that clients could follow.

If there were a logical set of rules then we'd have been using it before now. They don't want to legislate on what constitutes employment because it is too hard. Therefore, tax is subjective. Which is just one of the reasons why IR35 is a legislative abomination. If you've got a taxation imbalance between employment and self-employment/PSC, you shouldn't come up with something that is subjective and at times almost arbitrary to figure out which square hole the round peg belongs. You should redress the balance.

In that regard, the recent changes to dividend taxation made a lot more sense. Suppose they took that a step further:
1. Increase the dividend allowance for pensioners by £10K so as to mitigate the impact on pensioners who own a company.
2. Increase dividend taxation by 5% for those who hold more than 33% of a company.
3. Concurrently abolish IR35.

You'd have a tax regime which is more balanced, easier to enforce, and would actually increase HMG revenue. But that's too simple and not punitive enough for the small minds at HMRC.

[mudskipper]

(this is the same client I brought in a substitute at)

CEST is your friend if you have used a subby.

CEST is a mess, but it is the tool that HMRC are suggesting clients use, and a substitute will give you an outside determination.

[webberg]

Some interesting discussions above.

The rules on when individuals supplying personal services via an intermediary are deemed to be taxed at the same rate and in the same manner as an employee are in Chapter 8 ITEPA 2003.

It's very short.

The explanations and meanings behind the words used are very long and have filled several textbooks and many column yards of judicial reasoning.

HMRC has attempted to condense these learnings into their CEST machine but the nuances and shades of meaning from the huge library of words cannot be reduced to such a blunt tool as CEST. Further the CEST weapon is deeply flawed in that one of the pillars of deciding employed/self employed, i.e. mutuality of obligation, is missing and has no weight to bring to the result.

This will no doubt be tested in due course, but that might be years away.

For borderline cases it would be difficult for two "experts" to agree with each other 100%. Some will be cautious, others bolder.

The chance of an uninformed end client making a "correct" decision based on a limited (or no) understanding of the rules, is probably as good as two experts agreeing. The end client will "know" in their heart of hearts whether they see their business as employing a worker or buying a service. That is however also a decision that will be influenced by a whole swathe of motives including understanding what sort of risk - financial and otherwise - a decision either way will bring.

Do they go for "employment" knowing that the contractor may walk and that talent is lost to them, but at least they have no need to go through a painful process which can be nothing but trouble? Or do they go for "outside" knowing that they will now need to do some due diligence on the intermediaries and make sure that the liability (for an incorrect decision) cannot come back to them.

Further, who can be an honest broker here?

The end client wants a job done at a a certain cost. Whilst there are risks around being too cheap, their equation is quality vs time vs cost.

The agency wants to continue renting people. Having people supply services to an end client is not as remunerative and open to challenge from HMRC.

Umbrellas want to employ people and they will pick up the cautious and the previously burnt but many end client/agency cosy PSL's will seek to exclude those chosen by the contractor.

The IR35 specialists and insurers want a risk free life. The number of contractors outside IR35 will fall and so will premium income. However the risk will also fall. Some of these firms may be in for a boom or bust over the next few years.

The contractor here is very much as the whim and biding of whomever is most influential above. Many will be pushed into situations which are not to their advantage. (We are launching something here soon which may help.)

From PAYMENTS (not contracts) after 6th April 2020 however an end client is expected to be able to balance all of the above. Little wonder that some have already decided that this is "too difficult" and have gone for blanket.

Otherwise, your fears about HMRC forcing a hugely complex decision upon an unprepared arbiter are entirely correct.

[BlueSharp]

OK this all sounds lovely and wonderful and in a perfect world, large clients would hire tax specialist advisors or bring in tax consultants, and medium firms club together to share their costs and knowledge etc.

My client is not small but not medium and they have a handful of contractors dotted around Europe. So I really doubt they will pay a tax specialist and I'm pretty sure they won't speak with other businesses about this.

In addition, they have never had to think about IR35 before because it was never in their remit. They know less than an ant's fart about it.

And there must be a huge number of companies in the same position.

So this is why I mistakenly subscribed to the idea that HMRC must have published a logical set of rules that clients could follow. This is going to be tricky but there is an opportunity for me to educate my client, if they will listen. (this is the same client I brought in a substitute at)

I'm in a similar position except my client may fall into the small business exemption. Contract review, working practice review and CEST tool all put me outside. I have had a brief chat with my client contact about the changes where I was asked if i would charge more if I was inside IR35...

I explained that would not be an option as my prices to-date have reflected an outside ir35 position and I have no interest getting into a position that would threaten my tax position. Not heard anything since but I assume they have now got external advice. My contract is up November so it might all be academic anyway!

I'm not sure why you think the tax consultants are expensive, a working practice review costs less than £200 for my company (I assume it would cost client co similar), CEST is available.

[ChimpMaster]

OK this all sounds lovely and wonderful and in a perfect world, large clients would hire tax specialist advisors or bring in tax consultants, and medium firms club together to share their costs and knowledge etc.

My client is not small but not medium and they have a handful of contractors dotted around Europe. So I really doubt they will pay a tax specialist and I'm pretty sure they won't speak with other businesses about this.

In addition, they have never had to think about IR35 before because it was never in their remit. They know less than an ant's fart about it.

And there must be a huge number of companies in the same position.

So this is why I mistakenly subscribed to the idea that HMRC must have published a logical set of rules that clients could follow. This is going to be tricky but there is an opportunity for me to educate my client, if they will listen. (this is the same client I brought in a substitute at)

[BlueSharp]

Really, it would be great if you name 20 of the top 50 companies in the UK (by revenue) that do so. I think 'all in' will be the norm. They simply can not be bothered.

Why would the private sector not investigate an option that reduces risk and cost to their business? The risk of loosing talent and increase in project costs are greater than the risk of not showing reasonable care in their determination. They are not Public Sector puppets who have senior stakeholders working hand in hand with central government.

[northernladuk]

I dont know why do you think that you are the center of the universe and your experience is the only norm/reality.
Ultimate bollox as always from you. I feel sorry for your partner for having to put up with you.

I'm not but I am working with my client on this so have a view that totally contradicts what you've just said and also seen plenty of other threads saying the same. Just putting the facts out there.

My partner has no problem putting up with me. He's actually very supportive and proud of me.

[ShandyDrinker]

Apologies if this info is on the forum somewhere but I've searched and read for hours but no joy. I've read the half-arsed government publications on this but still don't see the boundaries on which we will be judged.

The question is: Where are the rules that clients will use to determine your IR35 status from April 2020?

It surely cannot be CEST alone!

If you want to see the rules, they will (hopefully) eventually be committed to github.

The current rules are available in spreadsheet form from 1.5.0-final.xlsx.

To see precisely what changes they're making, monitor:

• GitHub - hmrc/off-payroll-decision
• GitHub - hmrc/off-payroll-frontend

To get an indication of what the new questions will be in the GUI then changes to this file (among numerous others) will give an indication of what is incoming:

off-payroll-frontend/messages.en