IR35 question when supplying multiple people

[369goose]

Hi,

For the last few years i've contracted to the same client, and done it outside of IR35. Recently though my position is changing to more management, and I don't feel I have a legitimate IR35 defence anymore. So, i've decided to bite the bullet and work inside IR35.

My question though is regarding the deemed payment. I understand this is based on my income from the contract, but there's a bit of a complication.

As well as charging for myself I also have 2 offshore (Ukrainian) guys who contract to my company and I then recharge to the client at a profit.

Question is if this additional profit would also fall inside IR35, with them not actually being my employees.

If it does would it be feasible to operate 2 contracts with the client. One for my time and inside of IR35, and the other for supply of the other 2 guys outside of IR35.

Any advice appreciated.

Thanks

[northernladuk]

IR35 is in a contract basis and aims to discover if that worker is a disguised employee. It's possible to have parallel running contracts where one is out and one is in for example.

Your individual status has no impact whatsoever on the status of another person.

If they are both outside IR35 then you are fine.

[WordIsBond]

Of course you can operate multiple contracts with the same client. You could actually have three contracts, one for your "inside" role, a second for any tasks that are specific / defined enough that they could legitimately be outside, and a third to cover the other guys you supply.

Perhaps a better question is whether you should operate multiple contracts or not. It's hard to argue you are a disguised employee if you are actually paying someone to do tasks for the engager. Employees simply don't do that.

Even if other aspects of your relationship may be looking like an "inside" engagement, it seems to me it would be hard to make a compelling case that this is disguised employment. It's like a guy who is part and parcel, MOO and SDC by anyone's standard -- but he exercises his right of substitution for a month every year and goes off to the Bahamas, and does it when he wants with who he wants and only lets them know the week before. That guy is not an employee -- substitution is a silver bullet, in his case.

Is the fact that you are providing multiple resources under the same contract a silver bullet? Well, I'm not a lawyer, but it sounds pretty close to me. Employees don't do that. You have substantive financial risk in that if you don't get paid, your Ukrainians are still going to want some money. At least some of the services you are providing under the contract can clearly be substituted, even if not yours personally. This is a B2B relationship, even if the businesses are getting tied very closely together.

I'd be paying for some advice from a real expert before making any drastic decisions about separate contracts, if I were you. And if the advice you get is yes, you really should split contracts and go inside IR35, I'd be interested in the logic behind it.

[Lance]

I agree with WIB.
You don’t sound inside at all.
Being a manager can be deemed as inside but your sub-contracting, as part of the same contract ought to put you clearly outside.
You only need to be outside on one of the pillars.

[BlasterBates]

The fact that you are subcontracting means you run a "real business". I would certainly classify the subcontracted income outside IR35.

[simes]

WIB - a stupid question perhaps, so apologies up front.

Are you saying that due to the OP's mix of contracts that one is inside and the other one remains outside?

Or,

That the one subcontracting contract is outside, and that due to their being more than one revenue stream to the LtdCo, that all contracts sit outside?

Back in the day, I thought that if a LtdCo showed more than one revenue stream, and that one is not 100% beholden to just one contract, that one could then comfortably sit outside IR35 for all contracts, almost irrespective of contract terminology niggles or working practices...?

If this turns out to be a load of rubbish, go easy etc.

Cheers.

[northernladuk]

It's slightly different in the OPs case as he is mixing in his own overarching contract and that of the people he's taking on but.if you consider a contractor that has two contracts running in parallel it is quite feasible one could be classed inside and the other out. One being a bigger revenue generator does not change the situation regarding status of each contract.

Now when he comes to an investigation the multiple steams will most likely shut it down fairly quickly on the basis he is in business but that change the fact one could be classed inside.

The old business entity tests had multiple streams as a deciding factor but they are long dead. Its on a contract by contract basis with the multiple streams being a defense once investigated.

[LondonManc]

I'd say that the OP has moved more towards a traditional consultancy model, with customers and suppliers with whom he has a direct financial relationship. As such, I'd say that WIB is spot on and that the whole gig should be outside, with them in effect being the Managing Consultant.

[WordIsBond]

WIB - a stupid question perhaps, so apologies up front.
...

If this turns out to be a load of rubbish, go easy etc.

I have no objection to stupid questions if they are honest ones. Lets me feel smugly superior as I look down my nose and type out a brilliant response.

Are you saying that due to the OP's mix of contracts that one is inside and the other one remains outside?

No. OP currently has one contract, if I read it right.

I'm saying that if he split contracts he could certainly run the subcontracting one as outside and the other as inside, if he chose to. Or, if he has the right kind of tasks for part of his time, he could split into three contracts, one for subcontracting, and two for himself (one inside, one outside).

And I'm also saying I think that would likely be a mistake because the subcontracting aspect makes it unlikely he'd lose an IR35 case, because he isn't acting like an employee.

That the one subcontracting contract is outside, and that due to their being more than one revenue stream to the LtdCo, that all contracts sit outside?

It's all one contract, and it includes the subcontracting. And that makes it likely that the entire contract sits outside.

Back in your permie days, was it part of your employment contract to provide and pay subcontractors to your employer? No? Mine either. Never heard of such a thing. Employees don't do that. So the fact that he IS doing it makes it very unlikely that he'd ever be found to be inside, because he simply isn't a disguised employee while he's providing subcontractors.

Back in the day, I thought that if a LtdCo showed more than one revenue stream, and that one is not 100% beholden to just one contract, that one could then comfortably sit outside IR35 for all contracts, almost irrespective of contract terminology niggles or working practices...?

That's not entirely true, technically. Technically, it's on a contract by contract basis, so you could have two revenue streams and get dragged into IR35 on one of them. Practically, though, I don't know that anyone with more than one concurrent revenue stream has ever lost an IR35 case.

In this case, it's really only one revenue stream, though. It's a single contract to supply his services but also much more than his personal services. I think that is likely to be a silver bullet. If the contracts were separate, they could say, "That one is a de facto employment contract, the other is a separate thing in which you are operating as a business." How can they say that if it is all one contract? Would he even have a contract if he weren't providing a total business solution of three guys? How can they prove it? How can they decide exactly how much extra value he is bringing (and being compensated for) by providing not one but three guys? That's why I think it is likely to be a mistake to split the contracts -- it actually makes it possible for them to argue one of them is a de facto employment contract, when they couldn't really do so if it is all one contract.

Also, practically, since OP's accounts are undoubtedly showing his salary and pension payments, and a fairly significant expense for subcontractors, he's unlikely to ever be targeted for an IR35 investigation. His accounts don't look like a PSC.

And if he were targeted, I think they'd look once, look twice, and say, "This case is going to set a bad precedent and then we're going to have to put subcontractors in CEST and all these IR35 advisors will recommend everyone hire subcontractors." And they'd walk away.

[Old Greg]

OP, unless you are an office holder, you don't sound like a disguised employee.