End client questioning supply chain's worker's employment status End client questioning supply chain's worker's employment status
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  1. #1

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    Default End client questioning supply chain's worker's employment status

    Hi there,

    I work through my own limited company and deal directly with my client who is classified as a small sized company. Due to this client's size, until a few days ago I was under the impression that next April's IR35 change would not affect my tax status.

    However, one of their biggest customers, lets call them large companyA, recently contacted my client and all its other suppliers, and asked for the employment status for everyone who does work for them onbehalf on the large company. They also stated that invoices may not be paid if any of the people involved operate via a PSC and are deemed NOT to be caught by IR35. This is me....

    I've done a bit of research around this and have found information that implies that the small company get out clause is NOT applicable if the company is within a supply chain and not deemed to be the end client / fee payer.

    Does anyone have any thoughts / advice / information about this?

    Assuming that this negation of the small company size rule is correct, then I have one futher idea/question :-

    My role with my direct client splits into two areas. Development work for new projects that come along for large companyA and also support work at weekends to ensure the smooth running of large companyA's production system. I'm wondering if I could be put onto the payroll for my end client where I'd provide support, but still operate my limited company as outside of IR35 for my development work. I'm wondering if this working arrangement could split the deemed 'end client/fee payer' and thus protect the greater part of my income from IR35.

    Yep - I'm probably clutching at straws here, but thanks in advance for any info.

  2. #2

    Default End client questioning supply chain's worker's employment status

    You are probably work inside IR35 at the moment and just declare yourself outside IR35

    What makes you outside do you think ?


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  3. #3

    Should post faster


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    Quote Originally Posted by GhostofTarbera View Post
    You are probably work inside IR35 at the moment and just declare yourself outside IR35

    What makes you outside do you think ?


    Sent from my iPhone using Contractor UK Forum
    there is an exemption for small companies (below a turnover of £10.2 million. Balance sheet total is no more than £5.1 million) The OP mentioned a small company customer

  4. #4

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    @javadogsbody my understanding is since your customer is the fee payer, they are responsible for your determination. You may also be exempt due to the small company rule.

    However, there is nothing to stop the company further up the chain forcing inside IR35, e.g as financial services are currently doing.

    I do not see an issue with you combining company A activities as inside, and other activities with your limited company, if you wish.

  5. #5

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    A lot will depend on what Small Co actually does.

    Are they supplying a service to Big Co for which they carry risk and an independent means of meeting and mitigating that risk?

    Or are they simply finding people who can do what Big Co wants and are taking no risks in terms of project delivery or failure?

    Sometimes this is reduced to whether Small Co is a consultancy or an agency.

    Both terms have somewhat fluid definitions in this space so you do perhaps need to consider the underlying facts.

    If Small Co is a supplier/consultancy of genuine services and is a proper business, then the IR35 determination for you is made at that level.

    If Small Co is just a conduit for your services to Big Co, then it is Big Co who make the determination.
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  6. #6

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    Quote Originally Posted by JavaDogsBody View Post
    I've done a bit of research around this and have found information that implies that the small company get out clause is NOT applicable if the company is within a supply chain and not deemed to be the end client / fee payer.
    Don't confuse the upcoming off payroll legislation with the power wielded by a client in policing their supply chain. If the company ultimately paying for your services decides that they want those services delivered in a particular way (e.g., not using a PSC), then there is very little you can do about it. Where the actual responsibility lies for a status determination statement is probably moot. However, this company will probably discover (or wish they'd discovered) that it is much easier to outright ban PSCs in the supply chain than enforce a particular IR35 outcome that doesn't match reality.

    ( BTW, there is no way this will be an outsourced supply of services from what you say - "development work for new projects that come along" - smallco will be the fee payer, and largeco will be the client, guaranteed. )

  7. #7

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    Quote Originally Posted by JavaDogsBody View Post
    Hi there,

    However, one of their biggest customers, lets call them large companyA, recently contacted my client and all its other suppliers, and asked for the employment status for everyone who does work for them onbehalf on the large company. They also stated that invoices may not be paid if any of the people involved operate via a PSC and are deemed NOT to be caught by IR35. This is me....
    This is common in the financial world now. Small consultancy A needs workers to fulfil a contract they've won with large bank B. Large bank B says nobody in the supply chain can work via a PSC so IR35 is essentially moot. All workers must work via an Umbrella.

    I've personally seen large bank A working with large supplier B (let's call them JCN). They had an outsource contract and had a large number of PSC contractors on their books. Large Bank A says, no PSC / no IR35 determination. Large supplier B tells contractors that they either switch to PAYE/Umbrella at renewal or contract will not be renewed. Some walked and some switched. This was Jan 2020 - just before COVID.
    Last edited by pacontracting; 3rd September 2020 at 06:51.

  8. #8

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    Quote Originally Posted by JavaDogsBody View Post
    Hi there,

    However, one of their biggest customers, lets call them large companyA, recently contacted my client and all its other suppliers, and asked for the employment status for everyone who does work for them onbehalf on the large company. They also stated that invoices may not be paid if any of the people involved operate via a PSC and are deemed NOT to be caught by IR35. This is me....
    In which case as am outside IR35 contractor you've got a problem - because your client has to decide to either continue working with the client (and force you to work inside) or leave the contract (and terminate your contract as their contract isn't there).

    But we discussed this earlier this year and I know of small (5-10 people) consultancies who have walked away because it would stop the owner/director of the consultancy working on the project and that wasn't a problem the large company grasped so the consultancy walked away to protect the consultancy as a whole.

    So while you have a problem - were it to occur to me it's likely to cost me £500,000 and possibly the income of my staff , not just your own income
    Last edited by eek; 3rd September 2020 at 07:08.
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  9. #9

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    Quote Originally Posted by caffeine man View Post
    there is an exemption for small companies (below a turnover of £10.2 million. Balance sheet total is no more than £5.1 million) The OP mentioned a small company customer
    That changes who makes the determination. It does not change the status, which should come from actual working practices.

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    Quote Originally Posted by mudskipper View Post
    That changes who makes the determination. It does not change the status, which should come from actual working practices.
    Which can be trumped as demonstrated by the OP but the business decisions of the actual end client.

    If the end client says everyone must be being paid via PAYE nothing else matters, that business decision trumps working practices completely.
    merely at clientco for the entertainment

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