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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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This truth may concern contractors, however the harsh reality of IR35 is that it is the concern of the contractor and not that of the agency. At TreasureGuard we review every contract for every one of our contractor’s roles. This often leads us to discuss any contract problems with the agencies. At the end of the day, the agents usually tell us that they cannot adapt a standard contract for every client and that if the reality of the role is not as per the contract, then IR35 can apply anyway and an extra 20% of tax be suffered by the contractor. Agents generally tell us that the starting point of their contract is a standard agreement outside of IR35. However, when the client dictates certain terms, the current market determines that it is the client’s position that is respected first and foremost. We constantly see terms such as the client is controlling how the work is carried out, and that the client has absolute discretion on any substitution. These terms do affect IR35 negatively, however these terms are also dictated to the agency by the end client. To give an example of this, a large consultancy working for the Inland Revenue has the following directives for its managers in the engagement of contractors – Project Managers do have a right of control over contractors in a similar manner to the way in which they exercise control over their own employees. A personal service company cannot send another individual to provide the services in the event of the primary consultant/individual being absent. This consultancy then reflects the terms with the agency, and the agency must in turn cover the terms in their agreement with the contractor. The concern for the agency is that its contractor must then pay IR35 taxes. Contractors have the choice of several options at this stage. The first option of not accepting the contract defeats the whole point of contracting. The second option of altering the contract may have some mileage but not much. Clever re-writing of the terms of the contract could reduce the overall indicators towards employment, but may not remove them if ultimately the contractor is being controlled in reality as an employee would be. Thirdly and probably most importantly, the contractor can address their own in-business issues and show they are genuinely self employed. Together with having an IR35 defence policy (which is readily available in the market) a contractor can make it unlikely that, even with a bad contract in place, the Inland Revenue can classify them as caught by IR35. Perhaps this is why agency’s do not overly concern themselves with the contractors IR35 status, as practical planning by the contractor should make IR35 taxes not a concern for either party. In addition to taking out IR35 defence cover and negotiating the terms of the contracts towards self employment, the practical measures a contractor should take include; taking time off from the contract to pay for further training in their respective field, obtaining (at low cost) a website promoting themselves or their services (even if it never gets them any new business) and to also ensure that they have the required employers and public liability insurances in place. What has really strengthened the contractor’s case is the position of the end client. End clients are terrified of being classified as the employer in the contractual relationship. Potentially, if this does happen, the contractor could be entitled to unfair dismissal rights, holiday pay in addition to the client being liable for punitive national insurance and tax charges. This was the outcome in some recent high profile court cases (Cable and Wireless v Muscat and Dacas v Brook St). The legacy of these cases is that clients will fight tooth and nail to get away from an employment relationship, which in turn strengthens the contractors case when defending against IR35. With this in mind, all the parties to the contract should be working together to ensure that an employment relationship does not exist and the contractor does not have to pay the employment related IR35 taxes. Treasure Guard Aug 26, 2005 Email this article Printer friendly page Previous Page
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