It's Not Fine -- Specific Flaws With the New IR35 Tool It's Not Fine -- Specific Flaws With the New IR35 Tool
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  1. #1

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    Default It's Not Fine -- Specific Flaws With the New IR35 Tool

    I know there are other threads running on the new tool, sorry for the duplication. This one is not intended for general discussion, but to just list specific problems that HMRC really should fix. If you add to what I've said in the comments, I'll add it to the list, if in my infinite and undying wisdom I think what you say makes sense. Or, if you think what I've said here is wrong I can modify it.

    The idea is to have one list that those with an "in" at HMRC can point to and say, "You really should fix that."

    I'll break it up into six areas:
    Mutuality of Obligation

    Case law is clear that if there is no MoO it is not employment or disguised employment. The tool has NO questions on this at all that I've found. Glaring hole, so glaring that I wonder if it is intentional, since many contractors would beat an IR35 case on this point alone -- it's one of the pillars they HAVE to have to prove you are a disguised employee. Why did they not ask questions about this? Fail.

    Right of Substitution

    First, the tool makes RoS a binary choice between completely unfettered or no RoS at all. A completely unfettered RoS is a silver bullet, and the tool recognises this, but a partially fettered RoS is still a strong indicator of a contract for services and should have significant weighting.

    Second, the tool defines RoS so narrowly that clients are unlikely to ever say it exists. The tool implies that there is no RoS if the client can verify a substitute's capabilities, but case law would probably not support that.

    Supervision, Direction, Control

    The tool seriously underweights this. If there is no SDC, there is no employment, no contract for service. But it is possible to get an "inside IR35" determination even when there is no SDC. I did it with the following answers:

    No to substitution and helper.
    No, the end client cannot move the worker to a new task without a new contract.
    The end client can't decide how the work is to be done because it's a highly skilled role.
    The worker decides their own schedule, and where they work.
    The worker doesn't buy anything, is paid hourly, is paid for putting things right, receives no benefits, is not a line manager, and does not interact with the client's clients.

    With that set of answers, there is clearly no SDC at all, but the tool says inside IR35. That's wrong. Ironically they made SDC solely determinative for travel expenses last year, but now won't make its absence determinative for IR35.

    It's also silly. Change the answer to "the worker decides how the work is done" and you go from inside to outside. That one question flips it. But both are true in this case -- one set of workers decide because they are allowed to, the other set decide because they are smarter than their clients, and the smart guys end up inside while the dumb ones end up outside. Took a Public Sector Body to dream this up, I guess.

    Those are the big three areas in case law, MoO, RoS, and SDC. The absence of MoO or SDC, or the presence of RoS, should automatically rule out IR35. But there are other areas that come into play, and the tool does make an attempt to reflect some of this.

    Financial Risk

    I've not tested this section much, but it mostly seems pretty good.

    The first question's exclusion of equipment your company already owns is deeply flawed. If YourCo has to provide equipment, it has to provide it. Prior ownership is irrelevant to the client and irrelevant to the contractual relationship and working practices. Is there ANY justification for this prior ownership thing in case law, or did someone just pull it out of his backside?

    The "other expenses" option on this question should list "insurance," since many contracts require it, but clients may not think of it when using the tool.

    Part and Parcel

    They are asking some good questions here (line management, benefits, contact with clients), but I've not done any testing to see how the weightings come into play or whether this stuff can move you inside, outside, or to undetermined. If anyone has done any testing on this, feel free to chime in.

    Business Entities

    Remember back when you could prove you were outside by passing the old BETs? They were worthless for most people because it was based on the kind of business most contractors don't run. But there were some things in there that were compelling evidence, if they applied to you, that you were running a business and not a disguised employee. It included things like business premises, employing other fee earners who are paid via PAYE, lost money through bad debts, etc. Stuff that proves you really are running a business.

    This kind of stuff does show up in case law. And HMRC used to tell us it proved someone was outside. Unless they were just blowing smoke and want to admit their enforcement was all wrong in the past, they should have a section now that does the same thing. It's not stuff that should prove someone is inside, but it is stuff that should prove someone is running a real business and should be outside.

    Feedback on what I've said or additional problems with the tool welcomed, as I said, I'll modify this list if something needs changed or added.

  2. #2

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    Yes the killer question for SDC is this one

    Once the worker starts the engagement, can the end client decide how the work is done?

    1) The worker decides how the work needs to be done without any input from the end client =outside
    4) The end client can't decide how the work needs to be done because it's a highly skilled role = at best undetermined...

    And the bit I can't understand is why answer 4 is even there. It doesn't add anything to the first answer other than confusion...
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    Quote Originally Posted by eek View Post
    Yes the killer question for SDC is this one

    Once the worker starts the engagement, can the end client decide how the work is done?

    1) The worker decides how the work needs to be done without any input from the end client =outside
    4) The end client can't decide how the work needs to be done because it's a highly skilled role = at best undetermined...

    And the bit I can't understand is why answer 4 is even there. It doesn't add anything to the first answer other than confusion...
    I concur...and tbh, when you look at the actual question ("specific employee, policies, process or guidelines" or something) I'd be amazed if any end client would pick 1 or 4 anyway.

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    Quote Originally Posted by Guesstimator View Post
    I concur...and tbh, when you look at the actual question ("specific employee, policies, process or guidelines" or something) I'd be amazed if any end client would pick 1 or 4 anyway.
    My clients would pick #4. That's the whole reason they engage me.

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    Quote Originally Posted by Guesstimator View Post
    I concur...and tbh, when you look at the actual question ("specific employee, policies, process or guidelines" or something) I'd be amazed if any end client would pick 1 or 4 anyway.
    You clearly work in a different field to me as those would be the answers I would expect any client of mine to pick (heck they are bringing me in as the subject matter expert / specialist to configure and customise a particular product for them )... Hence my concern that these 2 very similar answers have different results (especially as answer 4 is merely the client being more honest than answer 1).

    Quote Originally Posted by WordIsBond View Post
    My clients would pick #4. That's the whole reason they engage me.
    Likewise - which is why the question is so annoying...
    Last edited by eek; 3rd March 2017 at 14:51.
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    Quote Originally Posted by WordIsBond View Post
    My clients would pick #4. That's the whole reason they engage me.
    I'm the same.

    However the problem is end client HR.

    IMO they'll read "follows employee procedure" etc and just say "in that case, we do determine how they work", whether that's true or not.

    The mentality will be "We've ticked that they are expected to follow our procedures. Whether they do or don't isn't what we care about, we've covered ourselves"

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    Quote Originally Posted by eek View Post
    And the bit I can't understand is why answer 4 is even there. It doesn't add anything to the first answer other than confusion...
    Seems like I remember reading something about some case that said things are different if someone is an expert. But I don't think the intent was to make having expertise turn you into an employee and not having it turn you into a business. That's just daft. In the real world it is the other way around, the experts go independent so they can sell their expertise widely.

    Other than that, from a simple flow chart perspective the question breaks down because you have options (answers 1 and 4) which aren't mutually exclusive and which result in different outcomes. So if both 1 and 4 are true, which they could be, the outcome of the test is arbitrarily determined by which true choice the person makes. HMRC at its finest, I guess.

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    Quote Originally Posted by eek View Post
    You clearly work in a different field to me as those would be the answers I would expect any client of mine to pick (heck they are bringing me in as the subject matter expert / specialist to configure and customise a particular product for them )... Hence my concern that these 2 very similar answers have different results (especially as answer 4 is merely the client being more honest than answer 1).

    Possibly not so different a field in that case.

    My immediate internal contacts would recognise 1 and 4...I fear HR (or whoever is tasked with completing the tool) won't give a toss/will simply default to arse-covering.

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    Thanks very interesting. It seems the whole set up will be reverse engineered in no time at all. Everyone will be outside! How dumb is that?

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    Quote Originally Posted by Guesstimator View Post
    I'm the same.

    However the problem is end client HR.

    IMO they'll read "follows employee procedure" etc and just say "in that case, we do determine how they work", whether that's true or not.

    The mentality will be "We've ticked that they are expected to follow our procedures. Whether they do or don't isn't what we care about, we've covered ourselves"
    That's why this tool as currently constructed is deadly in the public sector but is actually probably not bad for those in the private sector right now. We can use it to show we are outside and, if we really are in business for ourselves, we can easily choose and defend answers that keep us outside.

    If they roll out these stupid PS rules into the private sector, it will be trouble.

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