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Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

Blanket 'Inside IR35' determinations have become common. The reality is not that simple and you needn't accept an IR35 status that you don't agree with.



IR35 – WHY YOU STILL HAVE A VOICE


There has been a lot in the media lately about IR35, the changes to the rules and companies making blanket determinations that all contractors are ‘inside’ IR35. If you’re a contractor you’re almost certainly pretty familiar with IR35 by now, so we will just give a very brief overview of what it is. And then we will explain why you still have a voice - even if a company has made a blanket determination that all contractors are inside IR35.



Overview

Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants
IR35 used to go by the much more helpful name of the off-payroll working regulations. Essentially they say that if you are a contractor but really working as an employee you should be taxed like an employee. You’re intermediary limited company should be ignored and you should pay PAYE and NI, the same as the employee who is sat next to you and doing the same job.

It used to be up to the contractor to decide if they were caught by IR35 by looking at such factors as:

· Are you liable to fix your own mistakes?

· Do you work autonomously, or are you directed what to do by a manager?

· Do you have multiple clients at once, or many short term clients?

· Do you provide your own tools?

What all of these questions are asking is, are you genuinely in business, or are you a disguised employee. If HMRC decided you were the latter they would ask you to pay the taxes you would have paid if you were taxed as an employee rather than a contractor.


"...are you genuinely in business..."



What’s changed

Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

From April 2019 for public sector contractors and April 2021 for private sector contractors it is no longer up to the contractor to make the IR35 determination. Now the onus is on the employer to determine a contractors status, and therefore so is the risk and the liability if HMRC takes a different view.

Many organisations, especially large ones who are often quite risk averse, have announced that rather than risk getting it wrong they will just automatically make a blanket determination that all contractors are inside IR35 and tax them accordingly. What this means in practice is that rather than having a traditional rolling agreement, contractors are only offered a fixed term contract. That is, they are taxed through the payroll like every other employee but they do not get the benefits of actual employment such as holiday pay, sick pay and protection from dismissal. Clearly this is the worst of both worlds.

This has led many commentators to prophesise the death of contracting as we know it, and many contractors to accept permanent roles that they would previously have scoffed at.

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Why you still have a voice

The thing about IR35 is that it is devilishly complicated. HMRC likes going after large and high profile targets that it thinks it can make an example of so that we will all obey. But despite being the ones who wrote the legislation they still lose more cases that they win.
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

The government’s refrain is “why should two workers doing the same job be taxed differently just because one is working through a limited company”. And to be fair, they are probably right on this. But it ignores the complexity of the issue. You see there is a continuous spectrum of paying someone to do something for you. At one end of the spectrum you’ve got the salaried employee who’s worked for one company for ten years and enjoyed all of the perks like career progression, training, pay rises and sick pay. At the other end of the spectrum is the plumber who you call when the toilet is blocked. He has a specific job and when it needs doing you call him and he does it. In nobodies mind could he be thought of as an employee.

The issue is that between these two extremes there is a complex continuum and so deciding where to draw the line between employee and contractor is not straightforward.


"...deciding where to draw the line between employee and contractor is not straightforward."



For example, if you hire Accenture to implement a new company wide ERP system they you may have 5 Accenture employees permanently stationed in your office for six months, and working on your equipment. They are not going to accept being inside IR35. But what if you hire a contractor working through a limited company to manage the project from your side? They are working on the same project as Accenture, and will cease to be employed once the project is delivered. So should they be considered an employee? Arguably they are no different from Accenture and should be treated the same.

But what if you have your own internal project management office? They didn’t have the resources to manage the Accenture project as they are busy elsewhere, but the external contractor reports into them.
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

So now you have the situation where you have the contractor sat in the middle while on one side of them is an employee doing the same work as them but on the other side is a consultant working on the same project as them. In this situation the government’s claim that you should be taxed the same as the person sitting next to you doesn’t work. Which person should the contractor be taxed the same as?

Clearly there are all sorts of factors that would need to be considered here. And the point is not to endeavor to make an IR35 determination for the contractor. The point is to demonstrate that this is not a simple issue.
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants
When a company makes a blanket determination that all contractors are inside IR35 they then need to decide who is covered by the determination. Clearly Accenture are not, but what about the guy sitting next to them, working on the same project, just through a different company?
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants
The blanket determination becomes redundant as it simply moves the question from ‘who is inside IR35’ to ‘who is covered by our blanket determination’.

So when you are offered a fixed term contract, and HR tells you they have a blanket ‘inside IR35’ determination you can politely rebut: “I have no issue with your blanket determination on contractors, but I am a consultant. Here is my standard contract to deliver the specific piece of work for which I have been engaged.” If they don’t like it ask them if they’ve put the auditors on fixed term contracts for the duration of the audit? I can’t see KPMG accepting that, and if you believe you are outside IR35, then neither should you.


"...blanket determinations are for contractors. That's fine, I'm a consultant..."



This article first appeared on the LCCS Blog on 15 March 2021

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When Who Comment
2021-03-15 23:42:32 DonkeyPong Pre pandemic I'd have agreed with this. Now employers have too much choice. Inside IR35 is easier as there is no risk so they don't need to think about it. If you don't like it there are plenty of people out of work who will.
2021-03-16 01:12:12 EyeAre36 The best contractors know whether they should be in or out. And if they should be out they'll refuse to be in because they know a decent hirer will engage them on an outside basis. If someone refuses to properly consider and evaluate whether or not you are in or out you are probably better of not working for them.
2021-03-16 10:25:54 Steve @EyeAre36, that's all well and good if you have a decent war chest and can affort to turn down work. However when you need to put food on the table it is very difficult to walk away from a job that someone has offered you when you have nothing else.
2021-03-16 15:20:30 EyeAre36 @Steve I don't disagree. Take the job inside IR35, but make sure you have a 1 week notice period. Then you can work and look for an outside role. If enough people walk away from unfairly outside roles employers might realise its easier to spend the time doing a proper determination than having to re-recruit because people keep leaving.
2021-03-17 18:21:45 CamStevens Its never good form to walk away from contracts. Your industry is smaller than you think and you'll get a reputation that you don't want.
2021-03-17 20:11:48 EyeAre36 Clearly walking away from a contract is never the preferred option. But I could argue that if an employer refuses to give a proper determination then they deserve it. And like @Steve said, sometimes you just gotta put food on the table.


Further reading

Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

Blanket 'Inside IR35' determinations have become common. The reality is not that simple and you needn't accept an IR35 status that you don't agree with.



IR35 – WHY YOU STILL HAVE A VOICE


There has been a lot in the media lately about IR35, the changes to the rules and companies making blanket determinations that all contractors are ‘inside’ IR35. If you’re a contractor you’re almost certainly pretty familiar with IR35 by now, so we will just give a very brief overview of what it is. And then we will explain why you still have a voice - even if a company has made a blanket determination that all contractors are inside IR35.



Overview

Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants
IR35 used to go by the much more helpful name of the off-payroll working regulations. Essentially they say that if you are a contractor but really working as an employee you should be taxed like an employee. You’re intermediary limited company should be ignored and you should pay PAYE and NI, the same as the employee who is sat next to you and doing the same job.

It used to be up to the contractor to decide if they were caught by IR35 by looking at such factors as:

· Are you liable to fix your own mistakes?

· Do you work autonomously, or are you directed what to do by a manager?

· Do you have multiple clients at once, or many short term clients?

· Do you provide your own tools?

What all of these questions are asking is, are you genuinely in business, or are you a disguised employee. If HMRC decided you were the latter they would ask you to pay the taxes you would have paid if you were taxed as an employee rather than a contractor.


"...are you genuinely in business..."



What’s changed

Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

From April 2019 for public sector contractors and April 2021 for private sector contractors it is no longer up to the contractor to make the IR35 determination. Now the onus is on the employer to determine a contractors status, and therefore so is the risk and the liability if HMRC takes a different view.

Many organisations, especially large ones who are often quite risk averse, have announced that rather than risk getting it wrong they will just automatically make a blanket determination that all contractors are inside IR35 and tax them accordingly. What this means in practice is that rather than having a traditional rolling agreement, contractors are only offered a fixed term contract. That is, they are taxed through the payroll like every other employee but they do not get the benefits of actual employment such as holiday pay, sick pay and protection from dismissal. Clearly this is the worst of both worlds.

This has led many commentators to prophesise the death of contracting as we know it, and many contractors to accept permanent roles that they would previously have scoffed at.

Sign up to our newsletter*

*You can unsubscribe at any time here

**To comment on any of our articles create an account here



Subscribe

Please sign up to our newsletter*

*You can unsubscribe at any time here.

**If you want to comment on any of our articles you will need to create an account here.




Why you still have a voice

The thing about IR35 is that it is devilishly complicated. HMRC likes going after large and high profile targets that it thinks it can make an example of so that we will all obey. But despite being the ones who wrote the legislation they still lose more cases that they win.
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

The government’s refrain is “why should two workers doing the same job be taxed differently just because one is working through a limited company”. And to be fair, they are probably right on this. But it ignores the complexity of the issue. You see there is a continuous spectrum of paying someone to do something for you. At one end of the spectrum you’ve got the salaried employee who’s worked for one company for ten years and enjoyed all of the perks like career progression, training, pay rises and sick pay. At the other end of the spectrum is the plumber who you call when the toilet is blocked. He has a specific job and when it needs doing you call him and he does it. In nobodies mind could he be thought of as an employee.

The issue is that between these two extremes there is a complex continuum and so deciding where to draw the line between employee and contractor is not straightforward.


"...deciding where to draw the line between employee and contractor is not straightforward."



For example, if you hire Accenture to implement a new company wide ERP system they you may have 5 Accenture employees permanently stationed in your office for six months, and working on your equipment. They are not going to accept being inside IR35. But what if you hire a contractor working through a limited company to manage the project from your side? They are working on the same project as Accenture, and will cease to be employed once the project is delivered. So should they be considered an employee? Arguably they are no different from Accenture and should be treated the same.

But what if you have your own internal project management office? They didn’t have the resources to manage the Accenture project as they are busy elsewhere, but the external contractor reports into them.
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants

So now you have the situation where you have the contractor sat in the middle while on one side of them is an employee doing the same work as them but on the other side is a consultant working on the same project as them. In this situation the government’s claim that you should be taxed the same as the person sitting next to you doesn’t work. Which person should the contractor be taxed the same as?

Clearly there are all sorts of factors that would need to be considered here. And the point is not to endeavor to make an IR35 determination for the contractor. The point is to demonstrate that this is not a simple issue.
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants
When a company makes a blanket determination that all contractors are inside IR35 they then need to decide who is covered by the determination. Clearly Accenture are not, but what about the guy sitting next to them, working on the same project, just through a different company?
Limited Company Accounting, Tax, Contractor, UK, VAT, HMRC, IR35, LCCS, LCCS Accounting, chartered accountants, company accounts, limited company accounts, limited company tax, limited company VAT, contracting, limited company for contractors, limited company contracting, limited company tax deductions limited company chartered accountants
The blanket determination becomes redundant as it simply moves the question from ‘who is inside IR35’ to ‘who is covered by our blanket determination’.

So when you are offered a fixed term contract, and HR tells you they have a blanket ‘inside IR35’ determination you can politely rebut: “I have no issue with your blanket determination on contractors, but I am a consultant. Here is my standard contract to deliver the specific piece of work for which I have been engaged.” If they don’t like it ask them if they’ve put the auditors on fixed term contracts for the duration of the audit? I can’t see KPMG accepting that, and if you believe you are outside IR35, then neither should you.


"...blanket determinations are for contractors. That's fine, I'm a consultant...



This article first appeared on the LCCS Blog on 15 March 2021

Sign In to Comment

When Who Comment
2021-03-15 23:42:32 DonkeyPong Pre pandemic I'd have agreed with this. Now employers have too much choice. Inside IR35 is easier as there is no risk so they don't need to think about it. If you don't like it there are plenty of people out of work who will.
2021-03-16 01:12:12 EyeAre36 The best contractors know whether they should be in or out. And if they should be out they'll refuse to be in because they know a decent hirer will engage them on an outside basis. If someone refuses to properly consider and evaluate whether or not you are in or out you are probably better of not working for them.
2021-03-16 10:25:54 Steve @EyeAre36, that's all well and good if you have a decent war chest and can affort to turn down work. However when you need to put food on the table it is very difficult to walk away from a job that someone has offered you when you have nothing else.
2021-03-16 15:20:30 EyeAre36 @Steve I don't disagree. Take the job inside IR35, but make sure you have a 1 week notice period. Then you can work and look for an outside role. If enough people walk away from unfairly outside roles employers might realise its easier to spend the time doing a proper determination than having to re-recruit because people keep leaving.
2021-03-17 18:21:45 CamStevens Its never good form to walk away from contracts. Your industry is smaller than you think and you'll get a reputation that you don't want.
2021-03-17 20:11:48 EyeAre36 Clearly walking away from a contract is never the preferred option. But I could argue that if an employer refuses to give a proper determination then they deserve it. And like @Steve said, sometimes you just gotta put food on the table.


Further reading