IR35 - out of the pan into the fire?
Many private sector engagers will be approached over the coming months by advisors selling solutions to "the IR35 problem". I will even be one of them!
But, if you are on the receiving end of such an approach, then choose your advisor carefully. I'm already seeing some solutions being discussed which don't work, and will never work, for that client. If recent history has taught us anything, it’s that, if something seems too good to be true, it probably is. So buyer beware.
Whilst many of the solutions have a basis in law, they don't fit every situation. Ask yourself a few simple questions:
1. Is this a tailored solution for my business or an “off the shelf†solution with little or no understanding of my business?
2. How will this solution be viewed by a court in X years’ time?
3. Is the solution predicated on saving tax rather than helping me to be compliant?
That way you shouldn't go too far wrong.
Early favourites include:
· putting everybody on statements of work ("SOW") so that they are providing deliverables-based work for you even though the work is heavily time based.
· letting a third party become the "fee payer" and that way you don't have to worry about IR35.
· contracting with an entity that falls into the exemption for small businesses.
· contracting with individuals on a sole trader basis via an intermediary.
· contracting with a non-UK based business as they are not within the scope of the legislation
· employing everbody via a third party offshore umbrella with no transparency on payment flow.
Now, don't let me persuade you that all of the above solutions can never work. For example, contracting with someone via a SOW might work for some but not in the crude, one size fits all, way that I’ve seen recently.
Maybe a better way is to first assess whether the worker is within IR35? If they are, can changes be made to the working arrangements such that any tribunal would be happy that IR35 didn't apply?
If you are tempted to look at any quick solutions, ask yourself one final question.
Could today's solution end up creating a bigger problem tomorrow?
You decide.
Founder at Letz Do Ltd, Consultation Services
6 å¹´Good advice John. We are what some people would say a 'boringly compliant' Umbrella, boring because we do not kid the recruitment agencies into operating any 'clever schemes' that could result in a higher take home pay for the candidate. We found this model perfect when the off-payroll hit the public sector in April 17. Our Umbrella model fit compliantly for those candidates that would be working with different engagements during the week and could operate under one tax code. Concerningly we have recently found a mass migration to models that are allowing the agency to benefit on their pay rates from the ï¿¡3K Employer's Allowance (ENI) by referring candidates to set up a Ltd Co. which will have two directors in the Ltd Co.with one assigned abroad, sometimes in the Philippines. Each company has around two workers in it and as soon as the ENI is used up they are P45'd and 'flipped' into a newco and then the ENI starts again up to the end of the tax year. Given the theme of your post I can only see this being continually abused and potentially exploding across the market which is not why I believe the Government brought the ENI allowance in in the first place. Does this touch on T.A.A.R or possibly C.F.A? Interested in other views.?
Tax and Payroll Expertise in the Temporary Labour Market
6 年I agree Stephen..if only someone hadn’t ignored IR35 legislation and advised agencies and contractors that paying agencies workers via PSCs in order to avoid agency legislation was a great idea. This served to weaken the position of genuine locum and contractors and when the IR35 legislation was reformed in the public sector, if only someone hadn’t advised contractors to dump their PSCs, which cut off any opportunity to freelance in future, in favour of becoming an employee of an umbrella company, an employer in name only, and as you say some having a very dubious history and practises.
HR Leader - Transformation & Change Programs
6 å¹´Yes it is going to be a nightmare for large users of contractors. The one you missed is the 'blanket' approach that some government bodies have fallen foul of. Assessing if a contractor is within IR35 or not isn't that easy either. Read up on the arguments about the accuracy of HMRCs own assessment tool. Certainly going to be fun and games for the next 18 months!
Good advice certainly - if only public sector bodies had this before. A lot of them have fallen for some of your "early favourites" i.e third party fee payer, employing everybody (supposedly) via a third party umbrella (albeit not offshore), etc.....all predicated on avoiding employer taxes, possible employer benefit liabilities and VAT. Faced with this, some contractors have turned to equally bad umbrellas - the difference only being that these ones do it for the benefit of the contractor. Catch 22. This legislation is so poorly drafted and administered, leaving clients and contractors at the mercy of vultures.
Chief Financial Officer | Inflow Finance
6 å¹´If it sounds too good to be true.....