A true B2B relationship should not touch IR35

[webberg]

I'll add a few thoughts.

What you want is a SERVICE.

You care little for who delivers it so long as you get the SERVICE you want and its results in achieving the objective, presumably being delivery of a project.

You are prepared to pay for the SERVICE based on perhaps milestones which are not based on hours spent, but rather waypoints achieved.

If you find a SERVICE company to do this, prima facie this is outside IR35. You get an invoice from the SERVICE provider and pay it (with VAT) and the service provider recognises that as income.

You are then however told/advised/recommended by the agent you have engaged to find and facilitate that service that the work will be provided by a single individual working via their own company. No other individuals will be involved, just this one person. That one person may have the right to provide a substitute but in reality is probably not going to.

Suddenly you are not buying a service but instead you are hiring in a PERSONAL PERFORMANCE.

Because said person has an intermediary - his/her PSC - you are within the tax rules brought into existence via IR35.

(Incidentally, IR = Inland Revenue and 35 was the number of the press release of the budget that year).

The intermediaries rules in Chapter 10 ITEPA 2003 lay out the fact that where the individual performing the PERSONAL service does so in a manner that would define them as an employee, absent the intermediary (PSC) and the contract signed, then they are taxed as an employee. This was due from the PSC but post April next is due from the fee payer, who may be you (end client) or the agency.

In some instances the use of the agency may bring into account the Agency Workers Regulations making them liable. Most agencies can avoid these.

Where does the line between a service and a PERSONAL service lie?

It depends on the facts.

[malvolio]

I'll add a few thoughts.



You are then however told/advised/recommended by the agent you have engaged to find and facilitate that service that the work will be provided by a single individual working via their own company. No other individuals will be involved, just this one person. That one person may have the right to provide a substitute but in reality is probably not going to.

That is the key point that I keep hammering on about. The agency is the one that refuses to deliver a service provider and insists on selling a named individual

It depends on the facts.

Actually, I disagree slightly. It rather depends on who is defining the facts. My last two engagements have been for specific deliverables, even though I work(ed) in management consultancy, and that was because I didn't have the dead hand of the agency and their archaic practices to contend with, nor a corporate Human Remains team who typically have no idea about how to engage contractors.

[WordIsBond]

It rather depends on who is defining the facts.

Very much so. Or perhaps 'describing' is a better word for it. Because an important part of the 'facts' here is the words used to describe the relationship.

And that's part of OP's point, is that if contractors can get clients to use terminology that actually describes a B2B relationship, rather than a 'Master-servant' relationship, that becomes an important part of the facts. It's not like HMRC is going to sit around and watch you every day to see what is happening, so how things are described becomes very important.

Another key factor to that is that actions tend to follow words. If you consistently use words that describe a B2B relationship, and can get clients to consistently use those words, it is likely to result in more actions that fit B2B and fewer that fit employment.

IR35 'Reform' IS an opportunity in that regard. Those clients who are willing to go B2B rather than thinking/acting as if they are hiring a temp employee are likely to be the most appealing for contractors, and marketplace competition can result in more and more clients thinking that way. Contractors may be able to push clients that way by saying, 'If you'll agree to this, this, and this, we can have an outside determination and I'll cut my rate by 5-10%. Saves you money, saves me money.' The more clients that start to recognise they can get a better deal if they'll go B2B, the better.

[webberg]

I would agree that the language used is important and that in the post April 2020 world will become more so.

I have tried (and continue to try) to have some uniformity brought into this world in areas such as umbrella company quotes being on a common template so that comparisons are clear and valid.

Unfortunately most umbrellas continue to load their quotes with unrealistic levels of expenses and salary sacrifice just to squeeze a little more into the take home.

This is close to deception in my opinion.

In the context here though whilst the language needs to sharpen up and be more precise and consistent, the actions underneath it are crucial.

Either there is a true services delivery where the end client is really and actually agnostic as to who does it:

Or there is a personal component to the work being done which is required, desired or otherwise unavoidable.

In my view, the first is so far outside IR35 that an assessment is not needed.

The second is almost always inside IR35 (at least in the eyes of HMRC who will start an enquiry with that view and make the facts fit it).

[malvolio]

I....

Either there is a true services delivery where the end client is really and actually agnostic as to who does it:

Or there is a personal component to the work being done which is required, desired or otherwise unavoidable.

In my view, the first is so far outside IR35 that an assessment is not needed.

The second is almost always inside IR35 (at least in the eyes of HMRC who will start an enquiry with that view and make the facts fit it).

WRT this particular point, the fight we have is that clients continue to acquire workers through HR, on the basis that they are hiring people and that is in the sole remit of HR (internal or outsourced). When the only tool at your disposal is a hammer, then...

The two recent gigs I referred to were both sourced through procurement, a PO and a quick email exchange on how acceptance, invoicing and payment were defined. Looking back over the 23 years I was actively working, some 80% of my contracts could easily have been handled in exactly the same way. And I was mostly a senior consultant working on business process re-engineering, usually with little more than a general idea of what the client was trying to achieve. Yes they wanted my expertise and experience, which is why I got the job, but there are others in my network at least as good (and some better) who could easily have picked up the baton: except they couldn't because HR wouldn't let them.

Skills not Staff should be the hiring mantra for contractors.

[JohntheBike]

It's actually dead simple. Agencies make more money selling three months chunks of time than they do selling something that ends when the work is done. They sell bodies rather than skills becuause that is what they are selling to the clients (they invariably claim that the agency has a stock of qualified experts on hand to fulfil any requirement. Read their websites) and they use pseudo-employee contracts (which are usually negated by the client agency contract) becuase their HR and Accountants advise them that they will be safe from employement claims, which is complete bollocks but these are agencies we're talking about. OK, I'll exempt Andy Hallett since he accepted my argument several years ago...

You avoid IR35 in all its forms by having a clear B2B contract with no employee-related caveats for a defined piece of work and nothing else, and ideally for a fixed price. It's really simple to understand - unless you are agency interested in selling a commodity rather than a service.

(which are usually negated by the client agency contract)

I guess we all realise that the agency/client (upper) contract is likely to be different from YourCo/agency contract, but as far as I can see, this issue hasn't been debated so far in relation to CEST and the end client's status determination. If the end client uses the agency/client contract to help determine the status of the engagement, are we likely to see incorrect determinations purely as a result of this approach?

[malvolio]

(which are usually negated by the client agency contract)

I guess we all realise that the agency/client (upper) contract is likely to be different from YourCo/agency contract, but as far as I can see, this issue hasn't been debated so far in relation to CEST and the end client's status determination. If the end client uses the agency/client contract to help determine the status of the engagement, are we likely to see incorrect determinations purely as a result of this approach?

Just a reminder - we are some way away from 2001...

If the agency are engaged to bring in service providers, they can't possibly have a contradictory contract with the end client.

For instance, if your contract and the agency/client one do not agree, that is illegal under contract law, plus you cannot be bound by a contract of which you have no knowledge.

Apart from anything else they will be dealing with Procurement, who understand things properly, and not HR, who invariably don't.

[Lance]

So if you want to avoid IR35, avoid using agents and start working like a true business.

that's great, but a lot of companies have very long-winded processes to get you on the supplier list.
One of my current clients have to go through a fuill procurement process for anything over £25k. That means an awful lot of work just to get a PO for 3 months. The agencies they use are on a fixed margin and already approved as suppliers.

[JohntheBike]

Just a reminder - we are some way away from 2001...

If the agency are engaged to bring in service providers, they can't possibly have a contradictory contract with the end client.

For instance, if your contract and the agency/client one do not agree, that is illegal under contract law, plus you cannot be bound by a contract of which you have no knowledge.

Apart from anything else they will be dealing with Procurement, who understand things properly, and not HR, who invariably don't.

I hear what you are saying, but what if the intermediary is a software house and the contract between the software house and the end client is to provide IT services and doesn't mention individuals as such? Past experiences would indicate that this structure might be in place in relation to my contract. Is such a structure possible, or are clients obliged by contract law to have contracts in such circumstances which relate to the services of individuals?

edit
MyCo is contracted to the software house as a supplier and it receives PO's.

However, I do enter time in the Software House's time entry system, but invoice trough MyCo. The contract has been viewed by Abbey Tax and has been judged as outside of IR35. I guess there are many permutations of how individual contractors work, which will clearly have a bearing on their IR35 status.

[webberg]

As has been said above and as has been said in other places, the ways of the old world of contracting are in their death throes and if - and it's a big if - end clients want to continue engaging specific individual's then they have to accept that this comes with IR35 consequences.

Those consequences are no different post April 2020 than they are now but the timing of them has accelerated such that a decision they make has immediate effect. Previously even if a contractor was within IR35, they may not have known for years and were insulated from the cost. Post April 20 that all changes.

I read and here at least 10 times a day that contracts are the ultimate defence: there are or are not precedents for particular situations; an agency posing as a services delivery outfit is not a supplier of personal services: I can't be inside IR35 without having employment rights.

In my opinion, all of the above is wrong (or more precisely will become incorrect once the first payment post April 20 is made).

Contractors and the intermediaries that operate through need to find new ways to engage. There are some good ideas above. Ultimately however, whatever the contract says, the facts have to be put first and these will be the determining factor. Clever contract wording that is not adhered to in practice is a route to disaster.