Self-determining IR35 status post April by subcontracting from a "Small" consultancy?

[DrStrange]

Once you talk about widgets successfully delivered - you are outside the IR35 rules as the risk of delivery is with the small consultancy.

Well yeah, that's how it's supposed to work but the MSC rules apply independently of IR35 and don't have the exact same requirements. I'm starting to fear they'll just use those rules to get the same net result and the second two companies link up in any way, they're facilitating the use of PSCs

Is it an external project team (with financial risk of payment attached to the external team) or is it managed internally and so the resources are simply additional labour.

[/QUOTE]

The problem here is that it's going to be mixed project. The PM is perm at the client, some sprints are run by perms, others by contractors. In this example, Small Consultancy would manage their own one but priorities will be set by the PM.

[eek]

Well yeah, that's how it's supposed to work but the MSC rules apply independently of IR35 and don't have the exact same requirements. I'm starting to fear they'll just use those rules to get the same net result and the second two companies link up in any way, they're facilitating the use of PSCs

I don't know where MSC has appeared from here - James Brown talked about medium sized companies and you took it to mean managed service companies. If you run an PSC and invoice the company no Managed Service Company exists.

The problem here is that it's going to be mixed project. The PM is perm at the client, some sprints are run by perms, others by contractors. In this example, Small Consultancy would manage their own one but priorities will be set by the PM.

So the end client is running and managing the project -> they are the ones determining status.

There is no get out clause here - under the new rules what the end client decides is the status - and if you don't like it you can either find somewhere else and leave or stay.

And you are definitely not talking about widget delivery here you are talking about hours of time for bums on seats.

[DrStrange]

I don't know where MSC has appeared from here - James Brown talked about medium sized companies and you took it to mean managed service companies. If you run an PSC and invoice the company no Managed Service Company exists.

Sorry, I introduced the MSC chat after my client raised it with me. They seem to think that if Small Consultancy in this example has everyone on payroll, it's fine. But if they engage any PSC's off-payroll then Small Consultancy becomes an MSC Provider. I think that's nonsense but looking to check others thoughts.

So the end client is running and managing the project -> they are the ones determining status.

There is no get out clause here - under the new rules what the end client decides is the status - and if you don't like it you can either find somewhere else and leave or stay.

And you are definitely not talking about widget delivery here you are talking about hours of time for bums on seats.

I'm maybe not explaining things will but there's definitely no bum on seat element. Within the project there's obviously various elements. What I'm saying is that Small Consultancy's element is under its control, and that will deliver a set number of widgets for a set price by an agreed date. The only thing the client can choose is which kind of widgets we should build and that's before we start. Nothing can changed half way through and Small Consultancy carries risk of late delivery and rewards of early delivery.

[jamesbrown]

I don't think your client understands the MSC legislation. IIRC, it applies when the day-to-day management of the company is conducted by another company in an over-arching way; this is why accountants are explicitly exempt unless they stray from normal accountancy (professional assistance and advice and completing periodic returns) to doing things like handling invoices and making decisions.

I don't think we can offer you specific advice about whether your specific supply chain involves a contracted out service. All we can convey is the consequences in each case and perhaps caution you that most supplies will not be contracted out services where the end-to-end delivery is (largely) a black-box to the client, but will involve a supply of labour to a client where the client can see what is happening, day-to-day, who is doing the work, and they have some level of oversight and collaboration.

[eek]

Sorry, I introduced the MSC chat after my client raised it with me. They seem to think that if Small Consultancy in this example has everyone on payroll, it's fine. But if they engage any PSC's off-payroll then Small Consultancy becomes an MSC Provider. I think that's nonsense but looking to check others thoughts.




I'm maybe not explaining things will but there's definitely no bum on seat element. Within the project there's obviously various elements. What I'm saying is that Small Consultancy's element is under its control, and that will deliver a set number of widgets for a set price by an agreed date. The only thing the client can choose is which kind of widgets we should build and that's before we start. Nothing can changed half way through and Small Consultancy carries risk of late delivery and rewards of early delivery.

It's nonsense. The MSC rules are when a company is managing the day to day affairs of the director's business - i.e. determining dividend payments, issuing the invoices and managing the bank account that is directly paying you - however you probably can't override what someone at HMRC has incorrectly (probably intentionally) told your end customer to scare them.

Your issue is that someone has scared the end client into panicking. I really don't see how you resolve this without telling them to make a decision that you are outside otherwise you will be leaving. And HMRC want end clients to be scared - if they were thinking sanely they would be marking people as outside and saving money.

[lukas]

Small-business exemptions...

May I please ask for your insights about this scenario?

Take this supply chain looks like this:

PSC -> Agency -> Small-business consultancy -> Big-business receiving consultancy services (helping the client to migrate to the new tool)


PSC has a contract through an agency with a small-business consultancy. Due to the small size of the consultancy the changes to IR35 don't apply, and PSC will self-determine its status to be outside IR35 (contact is max 9 months, subbing is performed).

Question 1) In order to self-determine its status, is it the size of the small-business consultancy or the big-business receiving consultancy services - that matters?


Agency declares in writing that in their view the small-business consultancy is genuinely a small business - which it is in the UK. However the Company House shows that 100% shares in the small-business consultancy belong to original and bigger US-based company with pretty much the same name. PSC hasn't been able to determine the size of the parent company (the US branch might well be small or actually medium). Agent declares in writing this is not a parent-relationship and the 2 entities are not linked, hence what matters is only the size of the UK-based entity.

Question 2) Doesn't ownership of 100% shares make the US-based company with pretty much the same name - the parent? Hence should the size-test be applied to the parent as well? Or is it technically possible to have US-Based company owning all the shares and yet not be the parent or an associated company?

Question 3) If PSC accepts the contract and self-determines the role to be outside IR35 but then HMRC claims the small company exemption doesn't apply, should the US-based parent be medium, who would be liable?

Question 4) Can agency or small-business consultancy protect themselves from the wrong size determination by putting clauses in the contract that would offload the liability or costs to the PSC?

[eek]

May I please ask for your insights about this scenario?

Take this supply chain looks like this:

PSC -> Agency -> Small-business consultancy -> Big-business receiving consultancy services (helping the client to migrate to the new tool)


PSC has a contract through an agency with a small-business consultancy. Due to the small size of the consultancy the changes to IR35 don't apply, and PSC will self-determine its status to be outside IR35 (contact is max 9 months, subbing is performed).

Question 1) In order to self-determine its status, is it the size of the small-business consultancy or the big-business receiving consultancy services - that matters?


Agency declares in writing that in their view the small-business consultancy is genuinely a small business - which it is in the UK. However the Company House shows that 100% shares in the small-business consultancy belong to original and bigger US-based company with pretty much the same name. PSC hasn't been able to determine the size of the parent company (the US branch might well be small or actually medium). Agent declares in writing this is not a parent-relationship and the 2 entities are not linked, hence what matters is only the size of the UK-based entity.

Question 2) Doesn't ownership of 100% shares make the US-based company with pretty much the same name - the parent? Hence should the size-test be applied to the parent as well? Or is it technically possible to have US-Based company owning all the shares and yet not be the parent or an associated company?

Question 3) If PSC accepts the contract and self-determines the role to be outside IR35 but then HMRC claims the small company exemption doesn't apply, should the US-based parent be medium, who would be liable?

Question 4) Can agency or small-business consultancy protect themselves from the wrong size determination by putting clauses in the contract that would offload the liability or costs to the PSC?

1) it depends on what the small business is doing - it may just be providing bums on seats - which means it's the end client decision. They may be delivering a project at a fixed price (including accepting all risk) which would make it their decision or it could be somewhere in the middle which would make the decision ???? responsibility - as you can see we don't know.

Some banks have however stated no PSCs under any circumstance in which case the end client is overriding the small consultancy (which in one case means we've fully walked away from a bank)..

2) Don't know

3) Welcome to why this is a mess

4) it ends up with the PSC on cases of fraud by the PSC. The PSC claiming exemption when it wasn't valid would be one reason why the risk ended back with you.