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IR35 and Business on own Account

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    IR35 and Business on own Account

    Hi

    This is my first post and I'm really confused about our status with regards to IR35.

    We are a small consultancy who has 2 directors, who are normally client facing. We also have full time employees, some of whom are client facing and others that are internal working on software development. We pay holiday, sick pay, salaries, employer's NI and employer's pension for our staff. We also fund R&D and training, have our own website and company stationery. Some of the revenue earned from consulting/contracting is held within the company to fund periods where someone is "on the bench". We are NOT a PSC.

    We rely on the revenue from all of client facing staff (directors and employees) to keep the company profitable and to allow us to continue to fund our R&D projects. We are not a PSC but if we engage with a piece of work that is within IR35, we will be treated as one and our company will be put at risk because the revenue earned by payment of our invoices would be treated as "deemed" income of the particular consultant, which is definitely not the case. All of us, directors and employees are salaried and we all pay the required tax and NI. If tax and NI is deducted by our clients, this is really paying company funds to HMRC under the guise of "personal income". If this is the case, we will have to lay off our R&D employees as there wont be any revenue to fund them.

    Am I correct in my assumptions and does IR35 really apply to a company like ours?

    Regards
    Monkeyhanger

    #2
    Depends how the client engages your services. Do you provide a bum on a seat like these pseudo afency/consultancies do or do you provide a service. This could either be fully managed or on fixed deliverables with sow etc.

    That said you use employees not contractors?
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      Based on what you say, it sounds like you are a "proper" consulting business and *should* not be directly hit by IR35, but, what do your clients say? I'd be surprised if there is not some collateral damage as clients don't understand the regulations and think it will not apply to all their contractors.

      Do you or any other directors contract to your clients? If so, I could see those engagements at least having to be considered as having IR35 determinations made post-April.

      How do you provide your contractors to clients, commercially? Is it a bums-on-seats, T&M arrangement or defined deliverables?

      How many clients do your consultancy have? Remember, each contract would be assessed individually for IR35.
      Last edited by Paralytic; 11 March 2020, 15:33.

      Comment


        #4
        Originally posted by monkeyhanger View Post
        Hi

        This is my first post and I'm really confused about our status with regards to IR35.

        We are a small consultancy who has 2 directors, who are normally client facing. We also have full time employees, some of whom are client facing and others that are internal working on software development. We pay holiday, sick pay, salaries, employer's NI and employer's pension for our staff. We also fund R&D and training, have our own website and company stationery. Some of the revenue earned from consulting/contracting is held within the company to fund periods where someone is "on the bench". We are NOT a PSC.

        We rely on the revenue from all of client facing staff (directors and employees) to keep the company profitable and to allow us to continue to fund our R&D projects. We are not a PSC but if we engage with a piece of work that is within IR35, we will be treated as one and our company will be put at risk because the revenue earned by payment of our invoices would be treated as "deemed" income of the particular consultant, which is definitely not the case. All of us, directors and employees are salaried and we all pay the required tax and NI. If tax and NI is deducted by our clients, this is really paying company funds to HMRC under the guise of "personal income". If this is the case, we will have to lay off our R&D employees as there wont be any revenue to fund them.

        Am I correct in my assumptions and does IR35 really apply to a company like ours?

        Regards
        Monkeyhanger
        If your company isnt a PSC, what is it? Have you had it confirmed by anyone that your company isnt a PSC or is that just your opinion?

        Id really suggest you need to speak to a professional such as QDos or Bauer & Cottrell etc to accurately determine your co's position.
        I couldn't give two fornicators! Yes, really!

        Comment


          #5
          From what you've said you are a proper SME, not a PSC.

          IR35 is irrelevant for any work your client facing employees do, they are on PAYE anyway so everything is accounted for.

          For the Directors, as they are not the sole revenue generators for the business and are engaging with clients on the basis of payment against deliverable's rather than a day rate and working on discreet projects with,multiple clients backed up by your paid employees I really don't think you have anything to worry about.
          "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

          Comment


            #6
            Originally posted by DaveB View Post
            From what you've said you are a proper SME, not a PSC.

            IR35 is irrelevant for any work your client facing employees do, they are on PAYE anyway so everything is accounted for.

            For the Directors, as they are not the sole revenue generators for the business and are engaging with clients on the basis of payment against deliverable's rather than a day rate and working on discreet projects with,multiple clients backed up by your paid employees I really don't think you have anything to worry about.
            Having said that I know of one company that just closed down because its main client (of several) decided not to deal with PSCs/SMEs/Not-IBM any more, and put seven people out of work. Don't confuse the current issue about not using small suppliers with IR35, BigCos are reacting in entirely the wrong way, often for no real reason other than some d***head in HR told them it was safer.
            Blog? What blog...?

            Comment


              #7
              "PSC" is not legally defined so the question of whether you are or are not a PSC is somewhat moot.

              Technically, if you or other employees are providing personal services to a client, then those personal services could fall under the intermediaries legislation. I'm in a very similar situation, multiple fee earners, a big R&D project, etc. It's absurd that we have to even think about IR35 but technically we do.

              If you have fee earners that are fully PAYE (not shareholders) or hold less than 5% of the shares, then they should not have to be considered re: IR35. Good luck convincing a client that thinks they have to do a determination, though. For fee earners that are not fully PAYE and own more than 5%, it becomes very problematic -- the contract does have to be considered potentially in scope and clients technically have to do a determination.

              Unfortunately CEST is completely useless on this point. The old Business Entity Tests would have probably put you completely outside, but it's been withdrawn because it was useless for normal contractors. CEST should have brought into consideration some of the things the BET covered. Perhaps the best thing you can do is show your client your most recent accounts and say, "We're not a PSC and clearly outside IR35."

              Comment


                #8
                Originally posted by DaveB View Post
                From what you've said you are a proper SME, not a PSC.

                IR35 is irrelevant for any work your client facing employees do, they are on PAYE anyway so everything is accounted for.

                For the Directors, as they are not the sole revenue generators for the business and are engaging with clients on the basis of payment against deliverable's rather than a day rate and working on discreet projects with,multiple clients backed up by your paid employees I really don't think you have anything to worry about.
                It depends what has been sold

                I would typically (following the MS / Adobe approach) be estimating a time and material approach of x days based on initial analysis - it's that approach rather than fixed spec as it means we can change things if unexpected issues occur and changes are needed.

                Those days would include so many days of my time at say £1500 a day. But once I go beyond 8 of those days, I'm potentially got a problem because £12k is all I pay myself in salary. Now pensions probably resolve that issue but even so it should not be a customer telling me how I run the financial side of my business.
                merely at clientco for the entertainment

                Comment


                  #9
                  Originally posted by DaveB View Post
                  For the Directors, as they are not the sole revenue generators for the business and are engaging with clients on the basis of payment against deliverable's rather than a day rate and working on discreet projects with,multiple clients backed up by your paid employees I really don't think you have anything to worry about.
                  My 2 cents, I have 3 employees and several offshore people (on a day rate), also do own R&D etc etc. Me and one employee are on site 5 days a week for one large (over 50) solicitor firm, they have deemed that my employee won't be subject to PAYE and I will be, QDos weren't very helpful (basically said Client can decide what ever they like and they can't help with 'evidence' why not). My current stance is my employee continues at the client site and I stop and just put my feet up. I'm now seeking another employee to go in as my replacement and I'll sit at home and watch Jeremy Kyle.


                  This is certainly all insane but basically I won't work for any client who says "i'm" inside IR35 (which is all of them...)

                  Comment


                    #10
                    It seems funny that both small companies claim they carry out R&D. We had some quite interesting discussion about exactly what that is in IT and I seem to think it's unlikely many will be doing yet we have two in a week.
                    'CUK forum personality of 2011 - Winner - Yes really!!!!

                    Comment

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