IR35 Consultation Responses?

[TheFaQQer]

Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

So anyone brought in for their implementation expertise for the life of the project is a disguised employee?

Seems like a licence to stop work after 23 months and 29 days to me rather than being the sign of being a contractor or an employee.

[northernladuk]

So anyone brought in for their implementation expertise for the life of the project is a disguised employee?

Seems like a licence to stop work after 23 months and 29 days to me rather than being the sign of being a contractor or an employee.

Indeed. I should have added the devil will be in the details and should look at other factors within the timescale rule to understand if this isn't single enduring role or multiple disassociated roles.

[dynamicsaxcontractor]

Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

So if you have a contract for ad hoc hours for a client where you work between 0 and 60 hours per week you say that should be classed as within IR35 if it runs for more than 24 months? I think people need to get the mind set right, there should be no inside/outside based on length of contract/rate or other tangible such as expenses claimed if x miles away etc. The only right way forward is to can IR35 and instead hammer the clients that abuse the system forcing perm people through umbrella/psc.

[TheFaQQer]

Indeed. I should have added the devil will be in the details and should look at other factors within the timescale rule to understand if this isn't single enduring role or multiple disassociated roles.

The issue with any timescale is that there are always going to be issues with it.

If I have five different clients and work one day a week for each one over the course of multiple years, what is it about that contract that shows I am inside IR35 (either new or old rules)? Nothing - so why should I be described as an employee of each of those clients merely because I have a contract with them that has run for years?

[jamesbrown]

I agree with some of the WTT response, but the time-based test is completely arbitrary and will tend to favour "temps" that clearly operate as employees, on the one hand, and to an arbitrary cessation of services at 24 months on the other. This will have sectoral impacts (e.g. in engineering and infrastructure) and the proposed mitigations are likely to be viewed as over-complicated and unworkable, in practice, when the risk for employment benefits applies. Also, while it's fine to argue against the constraints imposed upfront, it's worth noting that the discussion document explicitly states the absence of any intention to bring into line employment and tax law. In other words, they have pre-empted the suggestion to have employment liabilities as a backstop to a fair determination, and the practical outcome of the engager determining status will be a blanket decision in most cases.

[GB9]

Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

Ok, so in my position I have a large programme that is intended to run for 21 months. Slippage etc. takes it over the 24 month period. Client asks me to extend to finish the job. Under this proposal I would incur a large lump of back tax so my response would be, 'sorry Mr. Client, can't stay'. Client severely inconvenienced.

If on the other hand it would mean me being within IR35 for a few months to get the job done then I would stay.

Imagine if you got hit with the 24 month T&S rule and were told you had to pay tax on all expenses claimed to date. That is the equivalent of what this proposal is saying.

[jamesbrown]

Imagine if you got hit with the 24 month T&S rule and were told you had to pay tax on all expenses claimed to date. That is the equivalent of what this proposal is saying.

Indeed, the retrospective element is ridiculous and contrary to case law on two counts, first that length of contract is established as having no direct bearing on status and, second, that status can change during a contract. I'd be wary of any suggestions that flatly contradict case law. A non-retrospective, project-based, test would be far more sensible as a test that a contract is a discrete piece of work, which is the aim and is not contradictory to case law (rather, supportive of it).

[webberg]

Your suggestions sound sensible. The only one I disagree with is that any contract 'extending' over 24 months should be deemed as being inside ir35 for the whole duration. This would lead to either a significant overdue tax liability for the psc, or more likely, the psc declining the extension over 24 months to avoid the back tax.

Surely anything post 24 months being treated as within IR35 would be more sensible? This would also fall in line with a previous ir35 judgement deciding that a psc had not become embedded into the client until after 4 years.

I think the process we saw was that if the contract extended over 24 months then the contractor became an employee for tax purposes (liability to deduct resting on engager) at 24 months + 1 day, or the employment was backdated and the deemed employer would remain liable for tax that should have been deducted in the previous 24 months. Perhaps there would be a credit for tax paid (or due to be paid) by the contractor but any excess falls at the feet of the engager.

[webberg]

Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

We very much looked at what is objectively measurable and what is more subjective and decided that any system capable of working in most situations had to be weighted to the objective tests.

Objective tests were; time, contract value and location.

Subjective tests included; location (I know it's in twice), business criticality, SD&C, intent (both engager and contractor), legal contract documents.

Measuring subjective tests is a nightmare and not conducive to mass application. The final submission therefore stripped a lot of that material.

Objective tests were easier and time is a good start point. 24 months is a measure used in tax elsewhere, formally or informally, and therefore fits the system.

Contract value is useful. If somebody is being paid at a rate equal to or better than senior employees for more than say 6 months, that's an indication that they are a key person in that business and that losing them would be difficult and perhaps threaten their business.

Location is more difficult. For small engagers with limited central functions, it works. For large multinationals with many offices, it is much more difficult, hence it's included in both objective and subjective. The one exception was where a contractor works at home or in an office provider by his agent/business, with occasional visits to an engager. That might be more indicative of self employment.

ALL of these tests to be done by the ENGAGER at the start of a contract and then every 3/6 months and if failed, then the ENGAGER becomes liable to deduct tax.

[jamesbrown]

I think the process we saw was that if the contract extended over 24 months then the contractor became an employee for tax purposes (liability to deduct resting on engager) at 24 months + 1 day, or the employment was backdated and the deemed employer would remain liable for tax that should have been deducted in the previous 24 months. Perhaps there would be a credit for tax paid (or due to be paid) by the contractor but any excess falls at the feet of the engager.

These sorts of suggestions may work in the simplest of cases, but business relationships are complicated, and there are good reasons for a separation between employment and tax law. Let me give you a concrete example from my own current experience. I'm in the process of agreeing a contract with a US university for a piece of work that will extend over 3 years. This was based on a joint bid (between MyCo and the US university) to a US federal agency over two years ago, which we've now won. At most, this is going to amount to a few weeks of work in each of those three years, performed in the UK and, being R&D, completely absent any SDC, as well as having no MoO and an unfettered RoS. Are you suggesting that this type of arrangement should be caught? Are you suggesting that a US university can be treated as a UK employer for tax purposes or employment law? This is how real businesses work: across borders, and sometimes with complicated contractual arrangements.