Converting PSC to preferred supplier list Consulting firm to remain outside of IR35

[happyfisherman]

My ClientCo is a major financial institution that hires a large number of contractors including myself. While there is a lot of concern about IR35, my manager is open to discussing potential proposals to legitimately fall outside of IR35.

Situation today

I currently only come into the office 1 week a month. The rest of the time, I work remotely from wherever I wish - starting & finishing whenever I wish (I work on the basis of getting the job done and am trusted to do so). My contract is time-based - is GBP X per day for 6 months.

That said, I still fear falling inside of IR35 due to lack of substitution & an argument could be made I’m no different from a remote employee.

Proposal

I’m thinking of approaching management to propose 2 or 3 contractors in the team club together to form a new LTD (NewLTD) which would apply to become a Preferred Supplier to ClientCo - essentially a consulting outfit. Our contracts would be worded on a fixed price deliverable basis and NewLTD would hire a FT employee who would need to be security cleared to work at ClientCo too. There would be no additional charge to ClientCo for work done by the FT employee as it would be covered under the new contract with NewLTD but allow us to legitimately exercise substitution. For example: FT resource would come into the office to write up and deliver a report to line manager. This would be an actual report that is normally created by myself and other contractors so would not be a sham document or exercise. If each contractor in NewLTD works from home one a month - they could individually exercise substitution by leveraging the NewLTD FT resource.

The intention would be to very quickly expand NewLTD with other contractors at other Financial services Clients to expand our revenue base and legitimately show HMRC that this is a real consulting business, delivering work to multiple clients using a mix of contractors who are also directors of the company but also FT employees who are actually doing work also under these contracts (not to mention getting trained up as part of the process).

Considerations

- Contract risk. Will need to be selective in who becomes a Director of NewLTD to minimise litigation / commercial risk (eg if director takes on a fixed price contract they are unable to deliver on - happens all the time in consulting world)

- Financial & reporting risk. My accountant has advised segregated bank accounts and individual P&L could be setup for each Director / Client contract but aggregated reporting would be provided to HMRC for NewLTD as a whole.

——-

What are your thoughts? Would this work? Any other considerations? Has anyone already done something similar with a client?


Sent from my iPhone using Contractor UK Forum

[simes]

My ClientCo is a major financial institution that hires a large number of contractors including myself. While there is a lot of concern about IR35, my manager is open to discussing potential proposals to legitimately fall outside of IR35.

Situation today

I currently only come into the office 1 week a month. The rest of the time, I work remotely from wherever I wish - starting & finishing whenever I wish (I work on the basis of getting the job done and am trusted to do so). My contract is time-based - is GBP X per day for 6 months.

That said, I still fear falling inside of IR35 due to lack of substitution & an argument could be made I’m no different from a remote employee.

Proposal

I’m thinking of approaching management to propose 2 or 3 contractors in the team club together to form a new LTD (NewLTD) which would apply to become a Preferred Supplier to ClientCo - essentially a consulting outfit. Our contracts would be worded on a fixed price deliverable basis and NewLTD would hire a FT employee who would need to be security cleared to work at ClientCo too. There would be no additional charge to ClientCo for work done by the FT employee as it would be covered under the new contract with NewLTD but allow us to legitimately exercise substitution. For example: FT resource would come into the office to write up and deliver a report to line manager. This would be an actual report that is normally created by myself and other contractors so would not be a sham document or exercise. If each contractor in NewLTD works from home one a month - they could individually exercise substitution by leveraging the NewLTD FT resource.

The intention would be to very quickly expand NewLTD with other contractors at other Financial services Clients to expand our revenue base and legitimately show HMRC that this is a real consulting business, delivering work to multiple clients using a mix of contractors who are also directors of the company but also FT employees who are actually doing work also under these contracts (not to mention getting trained up as part of the process).

Considerations

- Contract risk. Will need to be selective in who becomes a Director of NewLTD to minimise litigation / commercial risk (eg if director takes on a fixed price contract they are unable to deliver on - happens all the time in consulting world)

- Financial & reporting risk. My accountant has advised segregated bank accounts and individual P&L could be setup for each Director / Client contract but aggregated reporting would be provided to HMRC for NewLTD as a whole.

——-

What are your thoughts? Would this work? Any other considerations? Has anyone already done something similar with a client?


Sent from my iPhone using Contractor UK Forum

The current understanding is that if you have at least one of the three pillars of IR35 in place, then it can be successfully argued you're outside IR35. Your lack of Control would seem to support this. Presumably MoO is not far behind- can you answer this one?

Leaving only Substitution as the last pillar.

Yes, having all the pillars in place is better still, but at what cost if you go down the consultancy basis.

[DaveB]

The current understanding is that if you have at least one of the three pillars of IR35 in place, then it can be successfully argued you're outside IR35. Your lack of Control would seem to support this. Presumably MoO is not far behind- can you answer this one?

Leaving only Substitution as the last pillar.

Yes, having all the pillars in place is better still, but at what cost if you go down the consultancy basis.

And 2 out of three can do the job based on this :

HMRC’s use of barristers in IR35 cases hit by a victorious Helen Fospero

MOO and SDC in favour of the "contractor" Substitution deemed irrelevant even though it was missing.

The issue we face is not proving IR35 status but persuading clients not to listen to the FUD coming from HMRC and actually carry out proper assessments of their contractors.

[eek]

And 2 out of three can do the job based on this :

HMRC’s use of barristers in IR35 cases hit by a victorious Helen Fospero

MOO and SDC in favour of the "contractor" Substitution deemed irrelevant even though it was missing.

The issue we face is not proving IR35 status but persuading clients not to listen to the FUD coming from HMRC and actually carry out proper assessments of their contractors.

The issue firms face is the quiet advice (over coffee) a lot of large companies are being given by HMRC that keeping contractors is a "Brave Decision" and it will be very easy for HMRC to find a suitable test case after which HMRC will ask for the other 500 "contractors" to be taken into account.

As IR35 is now determined by the end company it's no longer a case of each case has to be treated and attacked individually. Now it's pick the strongest cases HMRC can find and chase a very large bill. It's why the banks are taking a blanket policy approach because it's just not worth the risk.

Better to outsource the work and let a consultancy take the risk. The fact the consultancy is offshore is not something HMRC care about today and by the time they grasp the consequences of their moves it will be too late.

[Manic]

First of all, does your manager have the necessary gravitas to get this approved?

Be careful of MSC legislation.

DaveB and Eek both hit nail on the head.

[simes]

And 2 out of three can do the job based on this :

HMRC’s use of barristers in IR35 cases hit by a victorious Helen Fospero

MOO and SDC in favour of the "contractor" Substitution deemed irrelevant even though it was missing.

The issue we face is not proving IR35 status but persuading clients not to listen to the FUD coming from HMRC and actually carry out proper assessments of their contractors.

Quite.

I had to look up FUD and, now duly educated, agreed. And while the HMRC voice is the Only voice likely to be listened to and adhered to in the absence of any other substantial body, it will be a world of disinformation.

I am sure too, the continuing run of HMRC court case failures will not make the clients sit up and question their position.

[northernladuk]

Standard contractor pipe dream this one. It 'could' be a good idea but the practicalities, many of which you've not mentioned, just won't let this happen.

One or two people 'may' pull this off but they are not the ones that have to come to an internet forum to ask about it. They've got the wherewithal and business sense to pull it off.

[webberg]

How much is the contract worth?

Go and get advice the cost of which will be a small fraction of that?

How much risk are you and your client willing to take on?

Go and get advice the cost of which will be a small fraction of that?

No amount of window dressing will magic you outside IR35.

Go and get advice the cost of which will be a small fraction of likely enquiry costs later.

If you're on a 6 month contract which is worth gross, £70K + 2 x that for your colleagues, why are relying on the posts of anonymous posters whose ability, experience, knowledge, expertise, professional bona fides (or not) you have no clue about?

Go and get advice - seriously.

[smatty]

You may also get stuck with current agency contracts and clauses about not working at same client again for a certain period.

[kir]

My ClientCo is a major financial institution that hires a large number of contractors including myself. While there is a lot of concern about IR35, my manager is open to discussing potential proposals to legitimately fall outside of IR35.

Situation today

I currently only come into the office 1 week a month. The rest of the time, I work remotely from wherever I wish - starting & finishing whenever I wish (I work on the basis of getting the job done and am trusted to do so). My contract is time-based - is GBP X per day for 6 months.

That said, I still fear falling inside of IR35 due to lack of substitution & an argument could be made I’m no different from a remote employee.

Proposal

I’m thinking of approaching management to propose 2 or 3 contractors in the team club together to form a new LTD (NewLTD) which would apply to become a Preferred Supplier to ClientCo - essentially a consulting outfit. Our contracts would be worded on a fixed price deliverable basis and NewLTD would hire a FT employee who would need to be security cleared to work at ClientCo too. There would be no additional charge to ClientCo for work done by the FT employee as it would be covered under the new contract with NewLTD but allow us to legitimately exercise substitution. For example: FT resource would come into the office to write up and deliver a report to line manager. This would be an actual report that is normally created by myself and other contractors so would not be a sham document or exercise. If each contractor in NewLTD works from home one a month - they could individually exercise substitution by leveraging the NewLTD FT resource.

The intention would be to very quickly expand NewLTD with other contractors at other Financial services Clients to expand our revenue base and legitimately show HMRC that this is a real consulting business, delivering work to multiple clients using a mix of contractors who are also directors of the company but also FT employees who are actually doing work also under these contracts (not to mention getting trained up as part of the process).

Considerations

- Contract risk. Will need to be selective in who becomes a Director of NewLTD to minimise litigation / commercial risk (eg if director takes on a fixed price contract they are unable to deliver on - happens all the time in consulting world)

- Financial & reporting risk. My accountant has advised segregated bank accounts and individual P&L could be setup for each Director / Client contract but aggregated reporting would be provided to HMRC for NewLTD as a whole.

——-

What are your thoughts? Would this work? Any other considerations? Has anyone already done something similar with a client?


Sent from my iPhone using Contractor UK Forum

Just wanted to know how did you get on with this ? I have been looking for some profesional advice, but doesn't look like there are many who are well versed with both legal and Tax aspect of this.