How many contractors does it need to be a business rather than a PSC?

[northernladuk]

Are you sure - I asked (a few times) if we changed model from Bum on Seat day rate to "go away, design and deliver x, install it, and at the end get paid y" it would skip all of these and nobody wanted to say that it would be outside IR35. This has been the confusion for me all along - what is the difference between...

1) Big software Co, comes in, develops x at a cost of Y using their staff - are they in or out of IR35?
2) Medium SOftware co, sells of the shelf product, but as part of that, they put 20 consultants on site to deploy it, train the users, customise it - are they in or out of IR35?
3) One man band PSC co provides service x, at a day rate of y - clearly a bum on seat - clearly inside IR35
but
4) On man band PSC co provides a development service, goes away, develops product Y, installs it, charges £z pounds - inside or outside IR35? If inside, why is this different from (1) and (2)?

Firstly... You need to understand PS engagements. All this hypothesising is pointless if you cannot get on GCloud and offer a service. The routes in to PS are very rigid and complex so it's not point worry about what could be. You need to look in to what can be. This is part of the problem the OP is not getting. It doesn't matter what he thinks he is or wants to be, it depends on how the PS is going to engage him. If he wants to offer a full managed solution he's going to have to get on GCloud which won't happen as they've tightened it up. The other ways (and I don't know them all that well) are CL1 - 4, NMNC and another one I can't remember. But it's all down to the PS client and under which framework they offer the gig under.

IMO I wouldn't bother trying to unpick the model, you've only got certain options and becoming a managed supplier to fill bum on seat roles isn't one of them for the vast majority. Even if you do it's caught as per the example in the legislation.

All that and on top of that is the fact it's just too early trying to fix it all in one post. We haven't even seen the bleeding tool yet so why is everyone trying to massage their models to fit when we don't even know how the rules will be applied?

EDIT : Oh and you've not got your options right either which doesn't help. I don't agree with Option 3 at all without going in to the others.

[malvolio]

The test appears to be responsibility for delivery.

Fixed price - responsible for what is finally delivered - outside IR35
Time and materials - responsible for what is delivered - probably outside IR35
Bum on seat with someone else responsible for the entire project - inside IR35

So what you are saying, in effect, is that HMRC does not believe the knowledge-based service economy actually exists. You're in business if you can deliver a "thing" but not if you only deliver something intangible, like a capital saving or a strategic goal

[eek]

Yep - that is my thought process and understanding of the proposed regs...

Deliver product X for £y and we (as developers decide/quote how long and how) = outside IR35.. on the basis that other than the requirement (we need an X that can do Y), there is no SCD?

Yes/No?

Yep - I think that's very much it...

[malvolio]

Yep - I think that's very much it...

To be fair that has always been the case - the hard part being to get such a gig in the first place.

[eek]

So what you are saying, in effect, is that HMRC does not believe the knowledge-based service economy actually exists. You're in business if you can deliver a "thing" but not if you only deliver something intangible, like a capital saving or a strategic goal

Look at CL1 and the other schemes Consultancy 1 and digital outcomes and you can see their logic.

But I think your question is covered by Consultancy one which would allow both the capital saving or a strategic goal to be made via a delivered document but that has to be explicitly sought in the first place.

The first thing we are going to see is departments having to be a lot more clear in what they are trying to achieve and picking the appropriate means of doing so. Ideally this may result in departments actually outsourcing entire projects to small consultancies rather than trying to deliver in house (yes I know I'm expecting pigs to fly).

[jonnyboy]

What are you on about, if the consultants are Perms, there is nothing to consider on the IR35 front .
If that consultancy hires contractors they will be IR35 caught, at least that's what the regulations seem to say.

I am on about example 3 from the document...

A consultancy PLC contracts to provide on-site consultancy services at the Ministry. This
consists of ten information management consultants to work in the Ministry’s policy unit for up
to six months, as well as some software and online support. The supply of ten staff in this
contract would be within the scope of the proposed measure. The consultancy would need to
use the online tool and consider the new rules.

[MrMarkyMark]

I am on about example 3 from the document...

A consultancy PLC contracts to provide on-site consultancy services at the Ministry. This
consists of ten information management consultants to work in the Ministry’s policy unit for up
to six months, as well as some software and online support. The supply of ten staff in this
contract would be within the scope of the proposed measure. The consultancy would need to
use the online tool and consider the new rules.

Yeh, but not if they are perm for the consultancy.

If the consultancy wishes to body shop contractors in, then they have to consider the new rules.

[RonBW]

1) Big software Co, comes in, develops x at a cost of Y using their staff - are they in or out of IR35?
2) Medium SOftware co, sells of the shelf product, but as part of that, they put 20 consultants on site to deploy it, train the users, customise it - are they in or out of IR35?
3) One man band PSC co provides service x, at a day rate of y - clearly a bum on seat - clearly inside IR35
but
4) On man band PSC co provides a development service, goes away, develops product Y, installs it, charges £z pounds - inside or outside IR35? If inside, why is this different from (1) and (2)?

1 - outside. Individuals don't own 5 per cent of the company.
2 - outside. Individuals probably don't own 5 per cent.

IR35 cannot apply in those circumstances, regardless of how the engagement works.

[MrMarkyMark]

1 - outside. Individuals don't own 5 per cent of the company.
2 - outside. Individuals probably don't own 5 per cent.

IR35 cannot apply in those circumstances, regardless of how the engagement works.

Correct they are consultant perms so IR35 is completely irrelevant, any seasoned contractor should know that, IMO.

[eek]

Are you sure - I asked (a few times) if we changed model from Bum on Seat day rate to "go away, design and deliver x, install it, and at the end get paid y" it would skip all of these and nobody wanted to say that it would be outside IR35. This has been the confusion for me all along - what is the difference between...

1) Big software Co, comes in, develops x at a cost of Y using their staff - are they in or out of IR35?
2) Medium SOftware co, sells of the shelf product, but as part of that, they put 20 consultants on site to deploy it, train the users, customise it - are they in or out of IR35?
3) One man band PSC co provides service x, at a day rate of y - clearly a bum on seat - clearly inside IR35
but
4) On man band PSC co provides a development service, goes away, develops product Y, installs it, charges £z pounds - inside or outside IR35? If inside, why is this different from (1) and (2)?

1. outside using staff so IR35 isn't an issue
2. Covered by example 3 in the consultation. Contractors bought in as part of those 20 consultants may or may not be outside depending on who is responsible for the contract as a whole (may be inside, may be outside it will depend on the amount of risk the consultancy is willing to take).
3. Bum on seat inside
4. Outside assuming its fixed price contract otherwise will depend on the amount of risk the client is willing to accept.