Contractors' Questions: What if I contract for a council’s 'Ltd' contractor?

Contractor’s Question: If I contract for a limited company that is doing work for a local authority, is IR35 or the off-payroll rules in play? My contract would be with the limited company -- not the local authority. Some formula for me to work with and apply to determine when the rules are in play would be gratefully received.

Expert’s Answer: If you are working through a company in which you have a 5% or greater interest, or a right to this -- referred to in the legislation as being a ‘material interest’, then the rules in Chapter 10 Income Tax (Earnings and Pensions) Act 2003 (ITEPA), must be considered. Those rules are the off-payroll rules.

You should advise the client or agency that you are working through an intermediary company and the client must advise the party with which it contracts whether the conditions in section 61M(1)(d) ITEPA are met or not. This is to say it must advise whether or not the arrangement is caught by the off-payroll rules. Where this is the case, the payment made to the company must be subject to deductions for employment taxes (PAYE & NICs).

If however, you are contracted to work for a company which in turn is providing services to the local authority, then it is a question of whether you are actually providing the services to the company or the local authority. The test in the legislation being the question of whether ‘an individual (“the worker”) personally performs, or is under an obligation personally to perform for another person (“the client”)’.

If your services are being provided for the company (i.e. the local authority is not receiving the services from you personally) then the Chapter 10 off payroll rules will not apply. However you will need to consider the application of Chapter 8 (IR35) if you are providing the services to the company via a PSC.

If you are providing personal services for the local authority (albeit via a PSC and the company) then the Chapter 10 legislation will need to be considered.

In any event, where you provide services via a PSC, one or other of the chapters of the legislation will need to be considered. The rules will also need to be considered where you provide services through a partnership or via another individual.

The expert was Ben Grover, senior legal consultant at recruitment law firm Lawspeed.

Editor's Note: Related --

HMRC 'on off-payroll rule dodge via consultancies'

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