Discussion
I own a company. I have a service contract as a supplier of IT consultancy services to a client company.
Being obliged to comply with IR35 because of the nature and spirit of this contract, I am bound to put my company's entire take from this contract (minus a flat 5%) through as PAYE, including employers NI, employeess Class1 NI and income tax, because the IR view me as a disguised employee of my client company.
Prior to IR35 I could pay myself dividends in lieu of salary and use the rest to cover business costs that I now have to pay for out of my own pocket, after being taxed as an employee. OUt of my salary I have to fund:
i) Any sickness
ii) All leave
iii) Any pension contribs (okay this is pretax, but there's no money available for employers contribs).
iv) All training costs (IT Avg=£3kpa)
v) Accountancy Fees
vi) Any insurances
and I have no entitlement to employees rights or protections from my client.
I could choose to eschew IR35 and declare my contract to be outside the scope of this mandate, but I'd still have to put money aside to cover what I would have paid under IR35, and insure myself against the cost of being investigated because the IR are very keen to squeeze all the revenue out of this that they can and their decisions on whose contracts fall within IR35 are pretty arbitrary and slanted - the nuances are being thrashed out in the high courts.
If you have any idea what a bunch of utter c**ts the Inland Revenue are and you ever want to get a good night's sleep, you comply basically, which is why my current main contract is barely worth getting out of bed for and is certainly never likely to be the foundation of a growing business.
In essense, it was another New Labour stealth tax - it sucks big time and is robbing me of the funds required to expand my business at any sort of rate, thereby meaning I'm unlikely to become an employer of staff and hence greater contributor to the economy. Of course, the other barriers to growth which have been thrown up since 1997 run to multiple volumes.
I can't afford a T350C either
>> Edited by CarZee on Friday 18th April 12:01
Being obliged to comply with IR35 because of the nature and spirit of this contract, I am bound to put my company's entire take from this contract (minus a flat 5%) through as PAYE, including employers NI, employeess Class1 NI and income tax, because the IR view me as a disguised employee of my client company.
Prior to IR35 I could pay myself dividends in lieu of salary and use the rest to cover business costs that I now have to pay for out of my own pocket, after being taxed as an employee. OUt of my salary I have to fund:
i) Any sickness
ii) All leave
iii) Any pension contribs (okay this is pretax, but there's no money available for employers contribs).
iv) All training costs (IT Avg=£3kpa)
v) Accountancy Fees
vi) Any insurances
and I have no entitlement to employees rights or protections from my client.
I could choose to eschew IR35 and declare my contract to be outside the scope of this mandate, but I'd still have to put money aside to cover what I would have paid under IR35, and insure myself against the cost of being investigated because the IR are very keen to squeeze all the revenue out of this that they can and their decisions on whose contracts fall within IR35 are pretty arbitrary and slanted - the nuances are being thrashed out in the high courts.
If you have any idea what a bunch of utter c**ts the Inland Revenue are and you ever want to get a good night's sleep, you comply basically, which is why my current main contract is barely worth getting out of bed for and is certainly never likely to be the foundation of a growing business.
In essense, it was another New Labour stealth tax - it sucks big time and is robbing me of the funds required to expand my business at any sort of rate, thereby meaning I'm unlikely to become an employer of staff and hence greater contributor to the economy. Of course, the other barriers to growth which have been thrown up since 1997 run to multiple volumes.
I can't afford a T350C either
>> Edited by CarZee on Friday 18th April 12:01
www.lawspeed.com/baschecklist.htm
basically it seems to mean about www.fpsgroup.co.uk/fpsltd/presales3.html
on your income
basically it seems to mean about www.fpsgroup.co.uk/fpsltd/presales3.html
on your income
Yeah thanks guys this ties up with what I'm finding out myself (as a contractor type "newby") seems, as you said, Car Zee, that they are determined to stop anyone retaining any sort of real profit from their work
It really does SUCK and is so open to individual interpretation it is a minefield.
Why though, eh. What warped civil servant thought this up?MoJo.
>> Edited by MoJocvh on Friday 18th April 18:38
It really does SUCK and is so open to individual interpretation it is a minefield.
Why though, eh. What warped civil servant thought this up?MoJo.
>> Edited by MoJocvh on Friday 18th April 18:38
Jarel in disguise
I was getting hit by this in the early days of my previous business incarnation. It sort of vaguely made sense for a few weeks in the .com boom as many 'contractors' were really taking the pi$$ as virtual employees of virtual businesses. Unfortunately IR35 is so ineptly crafted that it takes in everyone who is doing any IT contracting, many of whom are not making anything like the money they were a few years ago
It sucks, but you're stuck with it 
There are a great many dodges (of varying legality-eg umbrella co.) try a quick google or there are doubtless more threads on here.
I don't have anything to do with IT contracting now-back to playing with cars for a living
I was getting hit by this in the early days of my previous business incarnation. It sort of vaguely made sense for a few weeks in the .com boom as many 'contractors' were really taking the pi$$ as virtual employees of virtual businesses. Unfortunately IR35 is so ineptly crafted that it takes in everyone who is doing any IT contracting, many of whom are not making anything like the money they were a few years ago
It sucks, but you're stuck with it There are a great many dodges (of varying legality-eg umbrella co.) try a quick google or there are doubtless more threads on here.
I don't have anything to do with IT contracting now-back to playing with cars for a living
I was with the PCG in the early days - has anything changed?? I assume that still if you can prove to 2 out of 3 tax commissioners that you're in business on your own account, then IR35 doesn't apply.
It's a pain in the arse having to play by sole-trader rules when you're only trying to run a limited company, but have they tightened it up???
Last time I looked, all you needed was more than one contract i.e. multiple clients.
It's a pain in the arse having to play by sole-trader rules when you're only trying to run a limited company, but have they tightened it up???
Last time I looked, all you needed was more than one contract i.e. multiple clients.
lx993 said: .........
Last time I looked, all you needed was more than one contract i.e. multiple clients.
It is not at all straight forward. Just having more than one contract is not enough.
I have a friend who has worded his contract so :
He has control of what he does
Not named, and can substitute consultant at any time
Has a second (although does no work on) contract,
Has a website and actively advertises his services
and lots of others stuff too.
I believe he falls under IR35 (he has been at the same place for 3 years FFS!), but so far he hasn't been caught. He does however sideline enough money, and as CZ says pays an insurance policy for if he gets caught. He avoids so much tax & NI by giving 50% of dividend to his wife, which may also come back to bite him.
I worked under IR35, and my only problem with it is the inflexibility. 5% is pathetic, it should be more like 25-30%, to allow for lean times, and training etc.
Sparks
IR35 was a great idea (in theory) but has been implemented with typical government idiocy.
It seemed to come about because of the droves of highly paid, fully employed IT consultants leaving employment on a Friday and returning to the same company as a contractor on Monday. The purpose of doing so being nothing more than tax evasion.
IR35 enforced to prevent this type of contracting makes sense to me.
Unfortunately IR35 now seems to be applied in a random fashion, with no firm rules defined that could assist either the Inland Revenue inspector, or the contractor/company to determine their 'status'. Their are general guidelines but nothing definate.
Theres a case going through court at the moment (detailed on the PCG site somewhere) where a guy running an IT firm for 10 years, employing from 1-5 people over the years, has now been assessed as inside IR35. To any sane person he is clearly trying to run a business, to an IR gimp he's a potential cash cow.
So far I've been advised that all my contracts should fall outside IR35 (multiple simultaneous contracts, work from home, fixed price, liability insurance, clauses relating to warranties etc) but the IR could well turn up and ruin my first year of trying this!
It seemed to come about because of the droves of highly paid, fully employed IT consultants leaving employment on a Friday and returning to the same company as a contractor on Monday. The purpose of doing so being nothing more than tax evasion.
IR35 enforced to prevent this type of contracting makes sense to me.
Unfortunately IR35 now seems to be applied in a random fashion, with no firm rules defined that could assist either the Inland Revenue inspector, or the contractor/company to determine their 'status'. Their are general guidelines but nothing definate.
Theres a case going through court at the moment (detailed on the PCG site somewhere) where a guy running an IT firm for 10 years, employing from 1-5 people over the years, has now been assessed as inside IR35. To any sane person he is clearly trying to run a business, to an IR gimp he's a potential cash cow.
So far I've been advised that all my contracts should fall outside IR35 (multiple simultaneous contracts, work from home, fixed price, liability insurance, clauses relating to warranties etc) but the IR could well turn up and ruin my first year of trying this!
A question for those knowledgeable in these matter, just curious really.
If say two or three contractors were to open an umbrella company and bill two or three clients would this still fall foul of IR35?
I am assuming it would because there is still a one to one relationship between partner in umbrella and a singe client. However, there must be a loophole somewhere along the line.
If say two or three contractors were to open an umbrella company and bill two or three clients would this still fall foul of IR35?
I am assuming it would because there is still a one to one relationship between partner in umbrella and a singe client. However, there must be a loophole somewhere along the line.
Quite right - it's each individual contract that is reviewed, not the actual company (or partnership) itself. There are no loop holes as such but it is important that as many elements are inserted into the contract which emphasise the relationship as being of a "business to business" (ie trading) rather than a business to person.
Following on from eric's excellent point about one of the key points to IR35 is the wording in your contracts.
An additional series of points you can try and include are;
1. Do you direct the work or is it directed by the client on a daily basis. Ideally you want to direct the work / decide how and when it is done, supports B2B relationship.
2. Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves? - more an employee / self employed question but can be helpful. For instance I use a PC from my client to do their owrk on but it is their work only and I only use it becuase of their IT security policies, all other equipment is my own. Supplying your own kit would aid towards a B2B relationship.
3. Do you have to correct any unsatisfactory work in your own time & your own expense. If yes, tends to indicate a more B2B type of relationship.
4. Are you free to hire other people on your own terms to do the work you have taken on? If yes, helps to show a business type of relationship. If you are a sole contractor you could go for somehting along the lines of "the contractor has the right to substitute a person of similar skills and experience to perform the services under the contract. However the Client Company has the right to refuse such a substituation and can terminate the contract with the respective notice period as laid out elsewhere in this contract."
NOTE: I'm not a lawyer and haven't tested this type of thing against the Revenue, but I have put it in my agreements on the grounds that I think it can help to demonstrate my case as a B2B relationship I have with my clients. It also gives my clients a feeling of security that if I do exercise this clause and they don't like the person I have decided to substitute with they can terminate the contract if they so desire.
Chris
An additional series of points you can try and include are;
1. Do you direct the work or is it directed by the client on a daily basis. Ideally you want to direct the work / decide how and when it is done, supports B2B relationship.
2. Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves? - more an employee / self employed question but can be helpful. For instance I use a PC from my client to do their owrk on but it is their work only and I only use it becuase of their IT security policies, all other equipment is my own. Supplying your own kit would aid towards a B2B relationship.
3. Do you have to correct any unsatisfactory work in your own time & your own expense. If yes, tends to indicate a more B2B type of relationship.
4. Are you free to hire other people on your own terms to do the work you have taken on? If yes, helps to show a business type of relationship. If you are a sole contractor you could go for somehting along the lines of "the contractor has the right to substitute a person of similar skills and experience to perform the services under the contract. However the Client Company has the right to refuse such a substituation and can terminate the contract with the respective notice period as laid out elsewhere in this contract."
NOTE: I'm not a lawyer and haven't tested this type of thing against the Revenue, but I have put it in my agreements on the grounds that I think it can help to demonstrate my case as a B2B relationship I have with my clients. It also gives my clients a feeling of security that if I do exercise this clause and they don't like the person I have decided to substitute with they can terminate the contract if they so desire.
Chris
plotloss said: A question for those knowledgeable in these matter, just curious really.
If say two or three contractors were to open an umbrella company and bill two or three clients would this still fall foul of IR35?
I am assuming it would because there is still a one to one relationship between partner in umbrella and a singe client. However, there must be a loophole somewhere along the line.
The breaking point appears to be a minimum of 5 clients on the books at any one time + other business activities - advertising - risk - etc.
The Inland Revenue strongly advise that contracts which may be subject to IR35 should be sent to them for review. Whilst it is better to be absolutely sure of your position, I am not altogether happy with the idea of the IR being judge and jury on these matters. To be fair, they do not automatically decide that every contract falls under the remit of IR35. Please also note that IR35 is not solely an issue for the IT industry - it can be applied to ANY activity of a "sub-contract" nature.
Current thinking is that there is little point submitting contracts for "review". IR opinion from a review is not binding on them anyway. Put your head above the parapet and it will be shot off.
Section 660 is a much greater threat for many who run small businesses, with potentially disastrous consequences. Allegedly some people could be looking at serious (6 figure) tax bills because of IR "re-interpretation" of 660.
Section 660 is a much greater threat for many who run small businesses, with potentially disastrous consequences. Allegedly some people could be looking at serious (6 figure) tax bills because of IR "re-interpretation" of 660.
JESUS
have a looky here
www.shout99.com/contractors/attach.pl/15690/70/Section_660_01.doc
that is outragous Fcuking Labour want us all working in call centers for their mates EDS....
have a looky here
www.shout99.com/contractors/attach.pl/15690/70/Section_660_01.doc
that is outragous Fcuking Labour want us all working in call centers for their mates EDS....
Had a read - nothing spectacularly new, apart from maybe a new zealousness on behalf of the Revenue to challenge the "Input" (either capital or work) put into a family business by the "other half" and whether the remuneration received is warranted.
We will just have to await some case law to see if their new aggressive stance holds up in court.
We will just have to await some case law to see if their new aggressive stance holds up in court.
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