IR35 confusion

[notmyname]

Hi all, hope someone can help with this question please.

I have my own limited company, I deliver IT training (and sometimes consultancy) but it's mainly ad-hoc training days here and there.

I have a contract with a small company (I think there are only 3 or 4 full time employees, including the two directors) to deliver training for them occasionally, but there is no guarantee of work and I am under no obligation. Before I go any further, I'm right to assume that's outside IR35, yes?!?!

But as a business, they're bidding for work with much larger firms (including public sector), hoping to land longer-term consultancy projects. If successful, they plan to use me... but they're saying IR35 then becomes a problem and I would have to become an employee of their firm to do this work, as it is likely to become more regular, say 2 or 3 days a week, for six months or more.

Is that right? How does IR35 fit in when there is another small limited company between MY limited company and the (large) end client?

[cojak]

IR35 rules probably don't apply in your situation.

The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:

• the company has an annual turnover of more than £10.2 million
• the company has a balance sheet total of more than £5.1 million
• the company has more than 50 employees

See more here:
April 2021 changes to off-payroll working for clients - GOV.UK (www.gov.uk)

[notmyname]

Thanks for your reply cojak.... the (ultimate) client will meet those conditions, but they wouldn't be MY client. My contract would be with the smaller business in between, so would the rules still not apply?

[northernladuk]

Before I go any further, I'm right to assume that's outside IR35, yes?!?!

Your assumption is correct but I'll bet you've used all the wrong methods to get to that assumption so really just pure luck you are right.

IR35 is hugely important and is key to how we work so you really do need to get a better grasp and quickly. It's a but of an axe hanging over us at the moment so need to get it right. It's quite a complex area as well so is going to take a lot of leg work from you to understand. We cannot spoon feed it to you in a Q&A I am afraid.

You might get your answer to your question but you need to understand it in detail so you can apply it to any future engagements. There is a guide to the right, lots of info on here and plenty of guides at all levels on the web.

Cojak has answered your question but you really really must learn what it is and how it applies to you.

[LondonManc]

Slight off topic: If I were you, I'd want some incentive to go perm - your offering sounds like a key part of their offering and is therefore financially valuable.

In terms of the engagement - have you asked them why they'd want you as perm? Wouldn't a more rigid training contract cut it for them?
Sounds like you've got half a bum on a seat and aren't sure which way to wriggle.

[notmyname]

Sorry, maybe I wasn't clear enough in my post - I do understand IR35 and, northernlad, maybe "assume" wasn't the right word... I meant that before I confused the issue further, I wanted to confirm I was already right with what I knew about my existing contract.

I also understand how IR35 would apply if the large business was my client directly.

I just haven't come across this situation before, and although I've searched online I couldn't find any answers, so thought I would ask here.

[jamesbrown]

Thanks for your reply cojak.... the (ultimate) client will meet those conditions, but they wouldn't be MY client. My contract would be with the smaller business in between, so would the rules still not apply?

It really depends on the nature of the contract. It is not sufficient that your contract is with the small company, because the whole point of IR35 is to look through the contractual arrangements to see the hypothetical contract between you-person and the ultimate user of your services (whomever HMRC argues that to be). If it's a "fully outsourced" supply of services whereby the big client doesn't really know about you or have any control over what you're doing and your immediate (smaller) client is instead delivering a turnkey solution to the larger client, then the relevant client here will be the smaller one. In that case, and assuming they continue to meet the small company carve out, then IR35 remains the responsibility and liability of YourCo. This does not mean you're outside, it just means that you are responsible for deciding.

All that said, if your immediate (small) client thinks you're inside, then that isn't a good place to start (because that opinion may be expressed under investigation too). Moreover, the large client may express a strong opinion in order to mitigate their own risk (policing their supply chain).

[notmyname]

Thanks very much jamesbrown - that really helps. Based on what they've said so far, and now what you've said, any projects like this would most likely move the responsibility for IR35 away from my limited company and ultimately result in this engagement being inside IR35. I will give my options some thought! Thanks again.

[northernladuk]

Thanks very much jamesbrown - that really helps. Based on what they've said so far, and now what you've said, any projects like this would most likely move the responsibility for IR35 away from my limited company and ultimately result in this engagement being inside IR35. I will give my options some thought! Thanks again.

Where that seems to be true a good understanding will give you the power to easily work around this. It doesn't sound like it would be too difficult to change the way you supply your services which will give you a slam dunk outside. At the moment it sounds like you are just providing yourself on a day rate, a bit like a permie so that's why everyone is getting nervous. It won't be too hard to change your delivery to a managed service that you own so you provide a single cost SOW service. They come to you with a requirement, you put a full proposal together for X number of days training for Y price. You deliver, they sign off and pay you the full amount. No day rates or bums on seats. Total autonomation to deliver a set piece of work and bobs your uncle.

Even a carefully worded call off service would work as long as the contract isn't just for your personal service to sit on a seat and be told what to do.

But... to reiterate... before you can get clever you a good understand of IR35. It's absolutely key to your businesses so not knowing is a big mistake. If you know the rules I'd say you are in a strong position with the ad-hoc nature of work to change your delivery to a true managed service.

[notmyname]

Thanks northernlad... yes, when I've done any consultancy work for clients in the past it's been on that basis. But it's always been a bit more simple when they're my client and there's no additional business in between! I just run occasional courses for the small firm and so up until now, it's not been complicated. But I suppose if they did "pimp me out" I could consider the managed service approach. Food for thought - thanks!