I'm inside IR35 but my employee is outside - same contract

[pauljh]

Hello all,
I've been spending many months trying to work out if my current contract is inside/outside IR35, yes I've had QDOS review it and am going to put in some changes (mainly substitution). My current client only has a handful of contractors and are "working" out if my contract's (or new contract come april) IR35's status, which I can then discuss with them.

But based on my "understanding" I should be "way" outside, the gov IR35 tool says I'm either "undetermined" or outside based on a single question I'm unsure of the answer of.

Some real guidance would be much appreciated (before I phone QDOS).

I run a Ltd with 3 employees, Me 100% share holder, wife (nominal salary), Employee A (a REAL employee) I give him sick, holiday, pension, pay reviews, a set payment per month (he is contracted to me at 39 hours a week) - Plus he complains about pay etc like a real employee...

My contract with company A stipulates me and employee A by name and we both work on site (him 5 days a week, me 3 days a week), but we are certainly "treated" like employees (which is ridiculous to not be) in terms of, treated on a personal level team meetings, set desks, the client likes to have 1-1's with each of us to ensure we are happy, we can use the staff canteen (subsidised but not paid for), we get invitied to team events (we pay for ourselves), we DON'T get invited to big christmas do's etc. We have to agree with the client days off, working times etc.

Work comes from a JIRA board and we do it how we think best (software development) but can set up meeting to discuss with the whole team the best method, we get listed as in the "team" in internal communications.

So if it was "just" me I'd say my contract is inside IR35 but because of Employee A I'm "thinking" not.

Otherwise if the whole contract goes inside IR35 Employee A is going to costing me a lot of money (indirectly from the Client paying me less) and actually make it pointless me having him as the profit on him will drop significantly. Trying to change to a service contract is very tricky for this client and the statement of works is proving challenging as one week they may say "Oh no xyz you haven't seen before isn't working, can you please look at it" and this happens a lot...

I'm pretty sure I've asked this in a similar manner before... But old ages means I'm forgetful and my myspace page of searches isn't working...

How can I find out "for sure"?.. I want a good argument (besides the cert tool) "if" the client decides I'm inside and I have to sack my employee, quit contracting and move to Europe.

"help"?

[ladymuck]

It feels like you're both inside. I don't see how you having an employee makes any difference to your engagement with the end client.

[pauljh]

It feels like you're both inside. I don't see how you having an employee makes any difference to your engagement with the end client.

My understanding was I'm not a PSC

Also if Employee A gets taxed at source on his daily rate "he'll" pay more NI that what he "actually" gets paid (in his pay packet from me)? and more TAX than what he actually get's paid?, also how will I pay his employee side pension contributions?

[ladymuck]

My understanding was I'm not a PSC

Also if Employee A gets taxed at source on his daily rate "he'll" pay more NI that what he "actually" gets paid (in his pay packet from me)? and more TAX than what he actually get's paid?, also how will I pay his employee side pension contributions?

1. There is no such thing as a PSC. It is a familial, not legal term.

2. You pay your employee exactly the same as you do today. They are already paying the correct amount of tax by virtue of being your employee.

3. How you pay yourself is what what matters.

[Patrick@Intouch]

we are certainly "treated" like employees (which is ridiculous to not be) in terms of, treated on a personal level team meetings, set desks, the client likes to have 1-1's with each of us to ensure we are happy, we can use the staff canteen (subsidised but not paid for), we get invitied to team events (we pay for ourselves), we DON'T get invited to big christmas do's etc. We have to agree with the client days off, working times etc.

Work comes from a JIRA board and we do it how we think best (software development) but can set up meeting to discuss with the whole team the best method, we get listed as in the "team" in internal communications.

ladymuck is right, if it walks like a duck and quacks like a duck...

The only possible area for confusion here, it seems is that you are saying your contract can't be one of service because your company is providing two people and one of them isn't a director/shareholder. However, it is pertinent only to understand the position regarding you and if your company could send someone else to do the work that you do in the event that you were unavailable. If you can't then it could be argued that there is still a requirement for your personal service which would strengthen the argument for your contract being caught by IR35.

[pauljh]

ladymuck is right, if it walks like a duck and quacks like a duck...

The only possible area for confusion here, it seems is that you are saying your contract can't be one of service because your company is providing two people and one of them isn't a director/shareholder. However, it is pertinent only to understand the position regarding you and if your company could send someone else to do the work that you do in the event that you were unavailable. If you can't then it could be argued that there is still a requirement for your personal service which would strengthen the argument for your contract being caught by IR35.

The company like named people on contracts as its a very niche product (very niche) and they spend a good 3 months doing intense background checks on each contractor (at their expense) (this is beyong my checks I do before employing them).

Here in lies my major problem with the IR35 description. It's tagged as contractors paying the same PAYE/NI as a permy, its not tagged as "lets tax small companies more" and make up some rubbish description about fair pay/same job.

So in my example (these figures are made up)

1. I pay Employee A £100 a day, charge him out at £1000 a day, Company Z do PAYE/NI for Employee A at £1000 a day. Is this allocated to HIS PAYE/NI number?, if so come year end if he does a self assessment it will show he's paic more tax than what he's earned (and so will trigger a huge refund)?

2. I pay Employee A £100 a day, charge him out at £1000 a day, Company Z do PAYE/NI for him, so I don't. But I pay his pension?, how do I pay that (his side and my side)

3. Employee A £100 a day, charge out at £1000 a day, Company Z do PAYE/NI so my company don't do PAYE/NI for him, BUT then Employee A goes on a training course for 6 weeks so Company Z for those 6 weeks don't pay any PAYE/NI for him (I asked if it was okay if he has a 6 week break), do I now pay PAYE/NI for him based on the £100 a day hes really getting paid.

4. What if Employee A is sick for 3 months?

5. What if Employee A has a baby and I pay maternity leave?

6. What if Employee A does over time for me (unpaid) for another client?

7. What if employee A does paid overtime for me for another client?, what NI/PAYE do I pay on that?


Yes I've read the IR35 guide on the side, yes I've read lots of posts, yes I've mentioned lots of other contractors (all are inside now, but none have an employee onsite like i do), yes I've asked my accountant, yes I've done a lot of duckduckgo'ing..

Yes I have no idea what the answer is or how to get a "final" accurate answer except CERT (which as said is I'm outside or undetermined)

I'm thinking chat with QDOS instead of random forum posts? or I could publish a TikTok video about it and see how many likes I get..

[jamesbrown]

Bottom line, I think this will sink YourCo as it operates today if your client says this contract is inside.

If it isn't, then fine and the risk is with them.

Does your employee have the right, not unreasonably fettered by the client, to complete work that you would otherwise complete when you were ill or unavailable for any other reason?

If so, that sounds like a legitimate RoS and the CEST will always give an outside determination for that.

Otherwise, I tend to agree with the other posters that it smells a lot like employment, except for the potentially strong RoS.

[WordIsBond]

My view, FWIW, is that employees DON'T hire other employees and pay them personally. If you have a single contract that covers both you and your employee, in which you agree to provide two people, even if they are named, it is NOT therefore a contract of employment.

Furthermore, the most important part of control is "how the work is done" and you decide that, so that gives you at least an argument on SDC. It wouldn't be a strong one and not enough if it weren't for the fact of your employee.

If you have separate contracts, one for you and one for your employee, you'll be inside on yours and he won't be inside because he's fully PAYE already. But if it is a single contract it's hard to say how that can be considered a contract of employment -- I've never seen an employment contract that said, "The employee shall provide another worker, we'll pay him X amount for doing so, and he's responsible for employing that worker."

I am not an accountant or an employment lawyer.

[jamesbrown]

My view, FWIW, is that employees DON'T hire other employees and pay them personally. If you have a single contract that covers both you and your employee, in which you agree to provide two people, even if they are named, it is NOT therefore a contract of employment.

Furthermore, the most important part of control is "how the work is done" and you decide that, so that gives you at least an argument on SDC. It wouldn't be a strong one and not enough if it weren't for the fact of your employee.

If you have separate contracts, one for you and one for your employee, you'll be inside on yours and he won't be inside because he's fully PAYE already. But if it is a single contract it's hard to say how that can be considered a contract of employment -- I've never seen an employment contract that said, "The employee shall provide another worker, we'll pay him X amount for doing so, and he's responsible for employing that worker."

I am not an accountant or an employment lawyer.

Regardless, it's a hypothetical contract that applies to each worker separately. Obviously, actual employment supersedes deemed employment for tax purposes, so it's only relevant for the OP worker, not the employee worker.

The only thing that gives me pause for thought is the RoS. Two people supplied by the same company, working on the same project. Surely there's a strong RoS there, probably operated on many occasions?

[pauljh]

Bottom line, I think this will sink YourCo as it operates today if your client says this contract is inside.

If it isn't, then fine and the risk is with them.

Does your employee have the right, not unreasonably fettered by the client, to complete work that you would otherwise complete when you were ill or unavailable for any other reason?

If so, that sounds like a legitimate RoS and the CEST will always give an outside determination for that.

Otherwise, I tend to agree with the other posters that it smells a lot like employment, except for the potentially strong RoS.

Yes if deemed inside it will collapse my company and I will fire him and actually move abroad.

He could do my job but in reality can't because he's already on site doing it. so if I'm sick I can't say I'm sending Employee A as he's already there and can't do two jobs at the same time....