Can someone explain...
 

[Closed] Can someone explain IR35 to an idiot?

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Quick background - in a previous life I worked on a niche/old programming language that basically two companies still use. That previous employer is, not unsurprisingly, struggling to find coders so theres an opportunity to go back contracting (which I've never done before) ideally for a couple of years before I retire and they shift to something more modern (like COBOL....)

Looking at IR35 it seems as clear as mud. Can anyone give me a 30 second tour of it? Seems to imply if company A could employ someone internally then IR35 would suggest I couldn't work as a (limited?) company. But if its a 'specialised' skill does that give me leeway?

Not really bothered about working for them properly to be honest, but 12/18/24 months at a decent rate would be a nice retirement pot.

 
Posted : 09/03/2022 2:32 pm
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It's all about using a Limited company to invoice for your work instead of being on the payroll. There are potential savings because of Employee's and Employer's National Insurance.

If the situation is that you are working on the end-client's premises using their tools/equipment, in hours specified by them, for just one client and can't send someone else to do the work then the contract is caught by IR35 and HMRC can impose retrospective NI and penalties.

If the situation is that you're working from home using your own equipment, in hours you choose, have more than one client and can get someone else to do the work if you're not available then IR35 doesn't apply.

For a situation somewhere in between the above it's not so clear and you/the potential employer might need some proper advice. Most potential employers are quite scared of the consequences and are therfore reluctant to take on anyone as a contractor these days. They may therefore force you to go via an agency/umbrella company.

 
Posted : 09/03/2022 2:40 pm
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You cant work for them full time, or you would be called as 'employed' by them.

If you are contracting, then you will need to show that you have other customers on your books.

 
Posted : 09/03/2022 2:43 pm
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Thanks, I suspect I'm falling into the middle ground - working from home, my equipment (potentially), my hours but not sure I could find anyone to fill in for me if I wanted a day off. Lets see how risk averse they are.

 
Posted : 09/03/2022 2:43 pm
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I'm guessing by 'having another customer'I couldn't just say I'm making websites for people but haven't quite started yet...

 
Posted : 09/03/2022 2:47 pm
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You cant work for them full time

I would say you can't work for them full time long-term. It would be fine to work for them for a couple of months and then move on to a different contract for another client. Obviously still depends on the other aspects, equipment, substitution etc.

 
Posted : 09/03/2022 2:48 pm
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"You cant work for them full time, or you would be called as ’employed’ by them"

It's not as clear cut as that.

If the work is deliverable based e.g. a project, or a specific set of time bound deliverables this can still be "outside" even when the time period is a year or more.

Likewise, having one client or multiple clients doesn't in itself mean it's "inside" or "outside" IR35 - working on a big project for over a year for the same client is not unusual and providing the same service for multiple clients could still mean you're effectively "employed".

For most organisations (over the turnover threshold), IR35 determination is now for the hirer to determine. If they want to deem it outside when they know it's not, they take on the future liability for any claims by HMRC for backdated employer's NI etc.

One red flag to note is that if the employer is having difficulty hiring to an existing role, it's then very difficult to make a case that the assignment is "outside" IR35 i.e. it would be usual practice to employ someone to do it.

One other thing to note - the combined effect of the huge increase in corporation tax next year (the fractional rate goes up to 26.5%) and the NI social care levy will significantly impact potential earnings. For contracts with a day rate below £600-700 ish it's probably worth looking for a perm role or FTC and not taking the substantial risk that goes with being self employed.

A couple of other tips if you go ahead:
- set up a proper company name (not your own name), website and email address
- don't accept a contract that dictates restrictions on your ability to work elsewhere, or stipulates working hours etc. Clients can't do that to suppliers..
- be very careful about managing employees - things like performance reviews should always be done by the perm staff
- don't be part of a "management team" or similar that manages the day to day business
- look for an accountancy firm that includes the relevant insurances as part of their service.

 
Posted : 09/03/2022 2:58 pm
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The "simple" answer is its complicated and can only really be determined by HMRC taking someone to court and seeing who wins.

Using the company equipment can be fine (my place for example would provide a laptop to a contractor since it makes life a lot simpler in terms of security and access) and working from the office can be fine (again some might need this for security purposes) but they are then all balanced against each other. I think your main problem would be the idea you should be able to substitute another worker.

You can still be hired as a contractor outside of IR35 via umbrella companies etc but you possibly end up with a worse case scenario where you dont have the full rights of an employee but dont have the tax advantages of a contractor. That said might be fine from your perspective.

 
Posted : 09/03/2022 3:02 pm
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When I was in the contracting game, www.contractoruk.com was the font of all knowledge. Do your research before you ask a question in the forum. They are grumpy buggers 😛

If you're IR35 caught (which I think you probably are, but who knows these days):
Then you need to pay yourself 95% of your limited companies revenue as PAYE salary to avoid the risk of penalties / investigations etc.
OR
You can try to negotiate a fixed term PAYE contract with the employer, which takes all the risk out of it.
OR
You can use an umbrella company to employ you

 
Posted : 09/03/2022 3:08 pm
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If you are only planning to do this for a short period - get an umbrella company, the lack of stress will be palpable.

Having just won an IR35 investigation from HMRC, that would be my suggestion.

The additional hassle of a company, accounts, accountant etc are only marginally offset by the financial gains, and if HMRC decides they want to look, you may have to pay back taxes anyway.

It also (to me) sounds very clear that you could not substitute anyone else for yourself, since your specific knowledge is why they want you, irrespective of any other concerns, and you are therefore inside IR35. IANAL.

 
Posted : 09/03/2022 3:17 pm
 IHN
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Sorry folks, but much of the info posted above is incorrect. When I have a minute, I'll try to give a better answer (just on a call at the mo)

The main thing though is that you do not determine if your contract is inside or outside IR35 (which used to be the case), the company who you're contracting for does. Things like multiple clients, length of contract, own equipment etc etc now make no difference to that determination.

 
Posted : 09/03/2022 3:17 pm
 timf
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Sorry folks, but much of the info posted above is incorrect....

.....The main thing though is that you do not determine if your contract is inside or outside IR35 (which used to be the case), the company who you’re contracting for does.

I agree with IHN the company has to decide. Most large companies are risk adverse, I was involved in this when it came in at the company I work for and all the contractors in developer type roles were judged to be in scope of IR35.

Working via a umbrella company (at an appropriate rate) can work well for some as there is flexibility to vary how much you work each month according to project need and the developers preferences. For example go on riding for 4 weeks between projects.

Tim

 
Posted : 09/03/2022 3:39 pm
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"It also (to me) sounds very clear that you could not substitute anyone else for yourself, since your specific knowledge is why they want you, irrespective of any other concerns, and you are therefore inside IR35."

Not always the case. I work on certain projects "because I am me" and the Client has determined that because of my relationships/reputation/history/experience/unsubstituteable stuff that it is nor relevant for IR35.

"However, given the skilled nature of the work and requirement that the assignments are carried out in a prescribed manner so as to satisfy the requirements of the regulator, we consider that these matters are not particularly relevant factors in the employment status determination. That is, it is the nature of the work that necessitates these requirements rather than it being indicative of an employment relationship."

 
Posted : 09/03/2022 4:37 pm
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Mr Benn is in 🙂

P.

 
Posted : 09/03/2022 9:20 pm
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IHN is correct.
Client makes the determination; HMRC would expect employer to use CEST as part of the determination.
Would recommend contractor takes out IR35 insurance.

 
Posted : 09/03/2022 9:44 pm
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It means you have to pay your tax like an employee would.

 
Posted : 09/03/2022 11:53 pm
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They may therefore force you to go via an agency/umbrella company.

I'd love to see what government lobbying happened for the IR35 stuff.

 
Posted : 09/03/2022 11:59 pm
 poly
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AFAIK there is still one very simple way to make sure your contract is not within IR35: bill on fixed price project basis where you are liable for fixing mistakes rather than billing per hour! Obviously that's not a risk that lots of individuals are willing to take on (but in fairness then you probably are really an employee so should pay the tax as such - and some sort of umbrella arrangement probably gives the flexibility to 'do as you please' whilst also paying correct tax. We've put some people on what are essentially zero hour contracts (but very well paid ones!) to engage people who want contractor flexibility.

 
Posted : 10/03/2022 12:18 am
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Sorry folks, but much of the info posted above is incorrect.

This.

And my penny-worth - because of IR35 both me and the OH went perm.

Both of us contracted through our own Ltd company with multiple clients, but we're not the ones who decide whether it's in/out, the clients do.

The company I work for now only employs in-IR35, and we're well in the Top Ten of UK employers.

Short-medium term, Umbrella and suck it up.

This is how some companies screw the market to assist their business - IR35 fully promoted by the professional services companies, as we indy's were competition.

 
Posted : 10/03/2022 8:59 am