Outsourcing advice

[LondonManc]

Personally I'd involve QDOS to assist in building a cast iron outside IR35 determination.

[WordIsBond]

A few things.

First, to be absolutely clear, we don't yet know what the actual legislation will say. The answers you are getting on this thread are based on the draft legislation. Theoretically, it could change.

Practically, unless a voice from heaven speaks to Boris and he amazingly listens to it, this is going ahead and it won't change on the question you are asking.

Second, you do not have to evaluate every resource provider's employee. There are two cases in which you would not. A) It's a consultancy that is providing more than personal services to you. In that case, it is the consultancy's problem. B) Its employees / workers / contractors are not tax-resident/working in the UK. In that case, IR35 wouldn't apply.

In this case, both you and the worker are in the UK. Therefore, IR35 applies and that means under this delightful reform, you must make the determination.

I therefore see the following options:
1. Fight HR by citing the costs of losing the guy and ask them how the risks they are concerned about justify that cost, especially since there's a "light-touch" guarantee. Commensurate with that, say that there are ways to minimise the risks (on that point, it would probably help to cut the agency out of the chain and engage him direct, FWIW). If you want to talk about that, we can give you lots of ways to strengthen the case for outside.

2. Let him walk.

3. Restructure him into fixed-price work. He'll want a high price for the risk of overruns. But then you aren't paying for his service, you are paying for what he produces. That's not even an HR matter anymore. It's a procurement issue, you are buying a product from him. That's a completely new mindset for you and him but it works.

4. Do what you proposed, hope HMRC never connects the dots, and if you get caught blame HR for the blanket ban. In my view this would be very stupid.

I don't know if you understand his position. If he stays but on payroll, there's potentially significant risk that HMRC uses that decision as evidence that he owes back taxes for every contract he's ever done for you. Potentially they could even try to argue that his acceptance shows he knew it all along and so he was committing tax fraud, and they could try to pierce the corporate veil and make him, rather than his company, personally liable.

Is HR willing to indemnify him against the risk of historical IR35 losses, including penalties and interest? It's nice that they are risk averse, but the risk for them is for maybe a year, and no penalties since there's a so-called "light touch".

You're stuck between a rock and a hard place because your contractor isn't prepared to commit fiscal suicide and your HR is demanding that he do so or your project dies. Too bad for you. Maybe you should write a letter to the party of business.

[riskycl]

A few things.

First, to be absolutely clear, we don't yet know what the actual legislation will say. The answers you are getting on this thread are based on the draft legislation. Theoretically, it could change.

Practically, unless a voice from heaven speaks to Boris and he amazingly listens to it, this is going ahead and it won't change on the question you are asking.

Second, you do not have to evaluate every resource provider's employee. There are two cases in which you would not. A) It's a consultancy that is providing more than personal services to you. In that case, it is the consultancy's problem. B) Its employees / workers / contractors are not tax-resident/working in the UK. In that case, IR35 wouldn't apply.

In this case, both you and the worker are in the UK. Therefore, IR35 applies and that means under this delightful reform, you must make the determination.

I therefore see the following options:
1. Fight HR by citing the costs of losing the guy and ask them how the risks they are concerned about justify that cost, especially since there's a "light-touch" guarantee. Commensurate with that, say that there are ways to minimise the risks (on that point, it would probably help to cut the agency out of the chain and engage him direct, FWIW). If you want to talk about that, we can give you lots of ways to strengthen the case for outside.

2. Let him walk.

3. Restructure him into fixed-price work. He'll want a high price for the risk of overruns. But then you aren't paying for his service, you are paying for what he produces. That's not even an HR matter anymore. It's a procurement issue, you are buying a product from him. That's a completely new mindset for you and him but it works.

4. Do what you proposed, hope HMRC never connects the dots, and if you get caught blame HR for the blanket ban. In my view this would be very stupid.

I don't know if you understand his position. If he stays but on payroll, there's potentially significant risk that HMRC uses that decision as evidence that he owes back taxes for every contract he's ever done for you. Potentially they could even try to argue that his acceptance shows he knew it all along and so he was committing tax fraud, and they could try to pierce the corporate veil and make him, rather than his company, personally liable.

Is HR willing to indemnify him against the risk of historical IR35 losses, including penalties and interest? It's nice that they are risk averse, but the risk for them is for maybe a year, and no penalties since there's a so-called "light touch".

You're stuck between a rock and a hard place because your contractor isn't prepared to commit fiscal suicide and your HR is demanding that he do so or your project dies. Too bad for you. Maybe you should write a letter to the party of business.

Thanks, this does feel like it sums up the situation and options available to us.

Personally, I think option 3 is the best result for all parties and I couldn't agree with you more that it becomes an issue of procurement, however this has created great furore amongst our HR colleagues and some senior people in the business who I think are only now comfortable with option 2.

Perhaps I'm too close to it but I don't want to see a guy loose his livelihood over this legislation, only for us to end up outsourcing the work anyway.


Oh, by the way, I found some helpful articles on this website in case anyone else follows this thread looking for advice.
Will HSBC-type intermediary models beat the new IR35?

IR35 reforms: Where consultancies are caught

Contractors' Questions: Where do the off-payroll rules catch consultancies?

Which in turn link to...
https://assets.publishing.service.go...egislation.pdf - Page 13-14

Off-payroll working in the public sector: reform of the intermediaries legislation - technical note - GOV.UK

Thanks,
RC

[LondonManc]

Good point about taking the agency out of the equation.

An option:
Engage the contractor as a direct supplier.
The contractor won't have a problem with the agency beccause they can no longer provide the service as an intermediary due to the blanket ban. Give the contractor an extra £30 a day that you've saved from paying an agency to take on the risk of being paid on your standard supplier pay-cycle instead of weekly via the agency. The agency will be taking a bigger cut than this but you don't need to give the contractor all of it!

[riskycl]

Good point about taking the agency out of the equation.

An option:
Engage the contractor as a direct supplier.
The contractor won't have a problem with the agency beccause they can no longer provide the service as an intermediary due to the blanket ban. Give the contractor an extra £30 a day that you've saved from paying an agency to take on the risk of being paid on your standard supplier pay-cycle instead of weekly via the agency. The agency will be taking a bigger cut than this but you don't need to give the contractor all of it!

Unfortunately I tried this and our HR department pulled the plug on it as we'd still be engaging with a PSC. So now presumably we have to vet all future suppliers to make sure they are not PSCs!

[eek]

Unfortunately I tried this and our HR department pulled the plug on it as we'd still be engaging with a PSC. So now presumably we have to vet all future suppliers to make sure they are not PSCs!

Can you ask them what the legal definition of a PSC is?

[Lance]

Good point about taking the agency out of the equation.

An option:
Engage the contractor as a direct supplier.
The contractor won't have a problem with the agency beccause they can no longer provide the service as an intermediary due to the blanket ban. Give the contractor an extra £30 a day that you've saved from paying an agency to take on the risk of being paid on your standard supplier pay-cycle instead of weekly via the agency. The agency will be taking a bigger cut than this but you don't need to give the contractor all of it!

The intermediary is the contractor's LTD company not the agency.
Bypassing the agency as a suggestion, is more about avoding HR's blanket determination.

[simes]

I agree this whole IR35 situation is potty and seems very disruptive to the economy.

Unfortunately for me, I think the CEST tool tends to return Inside IR35 in this case unless we accept substitutes, which my company say we would never agree to. And this individual won't work inside IR35 even if my company were open to keeping contractors on the books.

With considerations to the other CEST questions, you do not need to Use a Substitute.

You just need to allow him to Offer a Substitute. And you need to have the right to Reject a Substitute. If this is observed, Outside results are still achievable.

I understand in saying this that this does not resolve your issue if you're dealing with HR and their policy. Quite possibly the most redundant and disruptive of departments in any given corporation, I sympathise.

While WiB's point 3 I would concur is the best of options, it might be that all the contractors need to walk before the clients feel the pain and Then, have a rethink. Of course you might just have to have someone to tell your HR dept to eff off before being able to get on with business.

And lastly, please do not be put off by the high minded hostility of the few. The preserve of forums the world over, I fear.

[economicpygmy]

I agree this whole IR35 situation is potty and seems very disruptive to the economy.

Unfortunately for me, I think the CEST tool tends to return Inside IR35 in this case unless we accept substitutes, which my company say we would never agree to. And this individual won't work inside IR35 even if my company were open to keeping contractors on the books.

Therefore I think I am stuck with option 2b. Unfortunately this will cost more and give me worse quality, unless the contractor himself goes into the outsourcer which we're saying is not an option because of "avoidance". The irony is that we'll have no idea who the outsourcer sends, how good they are, or whether they are the same kind of PSC as our current contact!

I'm wondering whether we need to bundle this work into deliverables rather than a "time and materials" basis.

Your situation is very similar to the one I'm negotiating, except I'm on the other side. The HR department has introduced a blanket ban, say they wont accept subs (even though I checked at the start and they signed the contract originally). The HR individual dealing with IR35 didnt understand the legislation in full and is hostile about contractors. I have said there is 0% chance of working inside. The engineering manager and I have been discussing a clear statement of work with payment milestones. There will be an upfront scoping phase of several weeks. The contract focus will be about delivering work.

[economicpygmy]

With considerations to the other CEST questions, you do not need to Use a Substitute.

You just need to allow him to Offer a Substitute. And you need to have the right to Reject a Substitute. If this is observed, Outside results are still achievable.

I understand in saying this that this does not resolve your issue if you're dealing with HR and their policy. Quite possibly the most redundant and disruptive of departments in any given corporation, I sympathise.

While WiB's point 3 I would concur is the best of options, it might be that all the contractors need to walk before the clients feel the pain and Then, have a rethink. Of course you might just have to have someone to tell your HR dept to eff off before being able to get on with business.

And lastly, please do not be put off by the high minded hostility of the few. The preserve of forums the world over, I fear.

If that HR department is anything similar to others at my clients, they are clueless and have no intention of finding workable solutions without others doing the leg work. OP has my sympathy.