A true B2B relationship should not touch IR35

[businessdave]

Scenario:

I am a business, and I find I have a requirement for specialist consultancy for a skillset nobody in my business has. I look to engage such a consultancy business and enter into a business agreement with them. After our initial discussion, we agree the period of consultancy might take 6 months but allow for a month of notice on either side just to keep it fair and allow for variability. We know what we want so the requirement is quite tightly scoped. It would be logical to have a series of meetings with the consultant on my business site at first, so we meet daily initially to help familiarise them with our systems. After that we just meet occasionally for status updates and talk on the phone. We agree that the chargeable rate is around £500 a day and anyone in the consultancy can do the work as long as they have the skills.

Now, my business isn't very good at finding other businesses, so I pay an agency to help with the search. They specialise in looking for small consultancy firms who can offer at least one full-time worker that fits my requirement. They facilitate the introduction and make the consultancy aware of what we're looking for. Saves us time.

The consultancy is a real business, although at the present time they only have one worker who also happens to be the director.
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ok you see what I'm saying - that sounds very much like the typical engagement but why isn't it really considered a proper B2B relationship? The problem I see is that agencies are thinking about it as if you're an employee, and talk to you about a 'role', they send you a 'job description', they put you forward for an 'interview' with the client. The client wants you to work on their site because they unwittingly think they're getting an employee who just gets paid in a different and more expensive way.

What I mean is, why isn't IR35 simply mitigated by getting agencies and clients to realise that they need to engage on strictly B2B terms, rather than an almost identical process to a permie hiring process where the permie just happens to work through a limited company? Isn't it just a case of adjusting the terminology and processes? and not even by much...

Like so:

• Don't ask for a CV of an individual. Ask for a business profile that lists the services and skills available to the business. I don't need to know the names of any worker you might send. I don't care.
• Don't "interview" an individual, arrange a feasibility meeting with a representative of the consultancy providing services. Establish with that representative whether a consultant can be provided to do the work. The consultant might change over the course of the engagement if the company has to switch them out as long as there's sufficient continuity planning for that eventuality.
• Don't send the consultancy business 'job descriptions' or talk about 'roles'. Talk in terms of the project-scoped business requirement that needs fulfilling within a set time period.
• Don't talk about needing to work on site, be practical about whether you need the consultant present on a daily basis so they can execute on the project.
• Don't ask to perform background or reference checks on an individual. You don't do that for businesses, only your own employees. Of course you might ask the business to assert that all provided employees have been checked, they can provide the evidence. Fine.
• Perhaps don't even have a client-based contract. Instead do something similar to what you'd do if you were an accountant - send your client a letter of engagement that details the services that will be performed and the terms under which your company will perform for them. They sign it.
• Avoid using terms that incorrectly make any reference to the consultant as an employee. For example, they don't have a line manager in your organisation. You don't give them a branded name badge or t-shirt. Don't try to include them as part of your huggy-snuggly 'team' culture. They don't come to your Friday team beers - why would they? They're probably not even on site.
• The consultancy itself isn't a faceless legal construct. They have a branded website, a list of services, and can take on as many other clients or undertake other services as they wish.

to my mind the net result of all this is that the client still gets the talent they require and the consultancy still earn the money that their business wants. Nothing about this even remotely looks like an employer-employee relationship. Nobody at any point in the chain has even referred to anything approaching that. How can IR35 even apply?

I say this because there are plenty of large organisations that get consultancies in who provide multiple people - like a team of 6 guys who work there for a month or two on a project, they're all permies for the consultancy, and then they go again. None of that is under fear of IR35. Aside from the number of people provided why should a contractor engagement be any different? Yes it requires shifting things around from how it's done now, but it seems straightforward to properly align the business relationship to make it more clear cut that it's B2B.

[northernladuk]

Wow. That's a hell of a read

You are trying to cover every situation a contractor can be in and I'm not quite seeing what your point is.

IR35 is there when an agent is in place (hence the name) because HMRC believes that, often, when an agency is involved the engagement isn't true B2B and the contractor is paying the wrong tax. They've a lot of evidence that might indicate this and there are many situation where this is absolutely true, more when it comes to drivers, temps and low skilled roles, not so much us. They are trying to pierce through the guff to look at the actual engagement. If that engagement is not as a consultancy and is just supplying a temp then they want their pound of flesh. If it's a true example of contracting skills to a client they they will go away.
They are just trying to close a loophole that is being abused. There is nothing fundamentally wrong with a client-agent-contract engagement. It's just being used incorrectly in many cases (so they think).

Hence the move to have clients determine what they actually want and how they engage. If the role truly needs a consultant then the determine it's outside and you are golden. If they want a disguised permie then they are now on the block for penalties if they allow a contractor to be treated as a company for tax but doing a permie role.

Your post is too long to pick apart but that summary might help your thinking.

[northernladuk]

Isn't it just a case of adjusting the terminology and processes? and not even by much...

Correct and these are very well documented and understood, well by most of us it isn't. Judging by the state of CEST it's not by HMRC but that's a different argument.

Don't ask for a CV of an individual. Ask for a business profile that lists the services and skills available to the business. I don't need to know the names of any worker you might send. I don't care.

Correct but not really essential. It doesn't factor in any cases or legislation so is a minor point. How they get that skill doesn't really matter, CV, glossy brochure, sales call or what. CV isn't ideal but isn't a problem.

Don't "interview" an individual, arrange a feasibility meeting with a representative of the consultancy providing services. Establish with that representative whether a consultant can be provided to do the work. The consultant might change over the course of the engagement if the company has to switch them out as long as there's sufficient continuity planning for that eventuality.

Correct and this is already enshrined in the process under Right of Substitution.

Don't send the consultancy business 'job descriptions' or talk about 'roles'. Talk in terms of the project-scoped business requirement that needs fulfilling within a set time period.

Correct and we've said this many times. A contract with the terms and a detailed Statement of Work covering the requirement. It's been known for 20 years that job descriptions are bad. Case law supports this already.

Don't talk about needing to work on site, be practical about whether you need the consultant present on a daily basis so they can execute on the project.

Not really. Plenty of large consultancies 'cukcoo' on site. Sometimes it just isn't practice. As tech has moved on WFH is much more prevalent but stuff can't always be done on site. Again, being on site or not is irrelevant to whether it's a real B2B or not.

Don't ask to perform background or reference checks on an individual. You don't do that for businesses, only your own employees. Of course you might ask the business to assert that all provided employees have been checked, they can provide the evidence. Fine.

Probably correct but there is such a lot of risk around this there is nothing wrong with clients asking for individuals to be checked rather than take a one man band's word for it. The responsibility and financial impact ultimately falls on a client so nothing wrong if they want a belt and braces approach. Large consultancies can do this but there is a massive amount of legal documentation covering it in the background. Just not feasible for companies our size.

Perhaps don't even have a client-based contract. Instead do something similar to what you'd do if you were an accountant - send your client a letter of engagement that details the services that will be performed and the terms under which your company will perform for them. They sign it.

Not a chance. The clue is in our title. A contract is essential and expected in any B2B engagement. Might work for accountancy service but won't for us. One thing about IR35 is if you act like a business you are probably safe. Buggering around with paperwork just to look like you are outside is counter productive, particularly if you are bringing risk in to your work i.e. not having a proper and agreed contract.

Avoid using terms that incorrectly make any reference to the consultant as an employee. For example, they don't have a line manager in your organisation. You don't give them a branded name badge or t-shirt. Don't try to include them as part of your huggy-snuggly 'team' culture. They don't come to your Friday team beers - why would they? They're probably not even on site.

Yup and has been the case from the first day IR35 hit 20 years ago. Sadly lost on many bum on seat perma contractors but this is fundamental. Participating in employee activities is well documented.

The consultancy itself isn't a faceless legal construct. They have a branded website, a list of services, and can take on as many other clients or undertake other services as they wish.

True but just doesn't work or isn't even need in 99.99% of cases. Again, acting like a business do to what you need to is key. Pretending to have websites and the like doesn't help anything.

I'm not sure what you are trying to achieve with this list. Activities and the like to keep you outside IR35 have been very well documented for 20 years. It's all been tested in court more than a number of times, so anything you can think of has been thought of. You are also missing the real point of IR35. Nearly everything above are small flags at best and most just reek of pretending to be a business. You've only touched slightly on the three main pillars which is all you really need.

Again, not sure the point of all this? Are you on a one man crusade to fix IR35 where most of it is already in place or what?

[Lance]

IR35 is there when an agent is in place (hence the name)

The I is for intermediary. The intermediary is your LTD. not the agency.
Although your point is fair.

[northernladuk]

The I is for intermediary. The intermediary is your LTD. not the agency.
Although your point is fair.

Feckity feck. What a horrible mistake. Yes you are absolutely correct. I was trying to use one of the examples he used which included agents and made a school boy error. Probably a few more in there as well as I was struggling to answer his point as there doesn't seem to be one.

This was the point I was trying to make when I tripped up.

But going direct, the contractor negotiates their rate and there is no agency margin to pay for. In a perfect world, this practice benefits both the client and contractor. As there is only one contract, rather than the upper level and lower level contracts when an agency is part of the deal, the contractor can negotiate a contract that suits them and the client. In particular the contractor and client can agree on a contract that is at a much reduced risk of being within IR35.

Good spot though, thank you.

[northernladuk]

Just for the OP's reading. To add to his list so he isn't re-inventing the wheel, here is a page with lots of points listed. Some reflect his points, some touch on them and many others are an addition. Plenty of other sites with lists as well.

[businessdave]

ok sorry for the verbose post, I was just trying to convey the point fully which (although you claimed to not see it) is that the strict B2B relationship is very close to the standard engagement many of us experience. I know the craic with IR35 conditions and how to mitigate - that's rather my point too. Why does every agency I've ever encountered not do this and persist in allowing permitractors to exist? Why engage and contact people using terms like roles, job description, interview, etc? Are they are just thick? Like you say, this has all been around 20 years - why doesn't anyone get with the ruddy programme?

[Hobosapien]

Why engage and contact people using terms like roles, job description, interview, etc?

Likely because they are recruitment agents that deal with individuals, including permies, temps, and all the forms of contracts of employment, so no surprise that contractors finding work via an agency get lumped into all that disguised employee stuff.

Clients should be using a different channel to find consultancies or business that can provide a service on a b2b level rather than individual level. Not sure what channels there are but something like a business directory or that GCloud services directory may be where they currently hang out.

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

[northernladuk]

ok sorry for the verbose post, I was just trying to convey the point fully which (although you claimed to not see it) is that the strict B2B relationship is very close to the standard engagement many of us experience. I know the craic with IR35 conditions and how to mitigate - that's rather my point too. Why does every agency I've ever encountered not do this and persist in allowing permitractors to exist? Why engage and contact people using terms like roles, job description, interview, etc? Are they are just thick? Like you say, this has all been around 20 years - why doesn't anyone get with the ruddy programme?

Because its worked OK for 20 years and wi continue to do so for many more.

That said the changes in 2020 will go someway to providing you with more clarity.. We hope.

[malvolio]

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.