The business entity tests were abolished in April 2015 - what does one now do to review whether they might get caught in IR35? I know, I know, I should know the answer to this, but I haven't had to look at it for a while, and hadn't realised BETs were gone!!
The test was heavily skewed in favour of determining that the person should be an employee. For reference the tests can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/430622/BETs.pdf but, as you are aware, they have been withdrawn.
Crunch also have an online test, which may help in making a decision, but it's by no means foolproof, and HMRC will take each contract on it's merits. A PSC could be outside IR35 in one contract but fall into IR35 in another.
https://www.crunch.co.uk/tools/ir35-calculator/
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
I've taken on a new client who works with a company that gives Independent Financial Advice. He goes to clients and works out a pension plan, then gets commission if the plan goes through. He is currently a sole trader, which I understand means its the IFA who is responsible, if he falls under IR35. But we are thinking about whether to incorporate.
The IFA is one company under 3 trading names. They pay his fuel via a fuel card, and he pays for his car, insurance, repairs and car tax. And he has his own laptop etc. If the plan doesnt go through, there is no commission. But jobs in the past could be commission only... not sure if that changed when minimum wage came into play?
Your client would be working through his PSC for just one company (yes its seperated into three but there is common control).
The company is using employee's working through PSC's to avoid NI, training, pension liabilities, etc.
Their current self employed status is also dubious. They need to be offering their services through many IFA companies.
Should they incorporate? I would say yes but for a different reason.
There has been discussion recently of those giving pension advice being held responsible if the pension advised does not perform as well as if different advice had been given (a new PPI in waiting!).
Incorporating will offer a little more protection than self employment (but not as much as being an employee).
Just my personal opinion there as the additional protection cannot be guaranteed.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks Shaun, I appreciate your thoughts, and have been thinking along the same lines, hence why I wanted to get him to do the IR35 tests. But if these have been abolished, whats taken over? How can one check now?
BETs never had any legal force behind them and were only ever used as an indicator as to whether a visit / investigation was warranted for further review rather than them being enforcable in their own right.
What determins whether someone is caught under IR35 remains the same as it always was in that the real test is one of control.
IR35 is really a matter of judgement and rather thasn thinking of it as a set of rules think of it in terms of if a reasonable and informed third party viewed the relationship would they see it as one of employment or not?
If someone is working for only one business for an extended length of time (including day one for an open contract) then they are to all intent and purpose an empoyee of that business.
Conversely if someone works no more than (say) 15% of their time for any given client then it would be difficult to say that they are an employee of that business which is why as bookkeepers and accountants thats not something we generally have to worry about (a bookkeeper working for just one employer would need to worry about deemed employment. Incorporation simply moves that worry from the employer to the deeemed employee).
With IR35 much as HMRC would love to tar everyone with the same brush the reality is that every case needs to be judged on its own merits. Although BETS no longer exist they remain as good indicators although now such has been converted from a sword wielded by HMRC to a shield wirelded by those seeking to prove their case.
Overall, look at the case in question divorced from any other case and consider whether all things considered you would say that the model used to pay them has simply been adopted to avoid employer responsibilities.
Don't consider it from the perspective of what your client does or does not get but rather from the perspective of how they conduct their business. To me the primary consideration is always how many businesses they actually work for and if more than one, what percentages (time and income levels).
From there go down into the other tests of control, equipment, etc.
Much as I think that IR35 is a really bad peice if legislation designed by those with alterior motives with the intention of destroying an industry (#1). One good thing about it id that it is good for illustrative purpases of the difference between rules based and principles based legislation in that one is not looking for how to traverse rules but rather whether one is in priinciple truly running a business rather than such being disguised employment.
The issue remains that the decision is based on reasonable judgement rather than a set rule, however with so many variations over what may be deemed employment it has to be that way otherwise you would just end up with people firefighting legislation with closing one loophole simply opening up another (which is the American system).
Or alternatively scrap IR35 completely which is what the Conservatives vowed to do.
Hope that helps,
Shaun.
#1 when IR35 was devised the new labour Government invited for consultation the opinions of oursourcing / consultancy firms including firms based in India but would allow no representation of any organisation representing UK based contractors.
The conservatives promised to repeal this really poor legislation aimed squarely at preventing social mobility but now into the second term in office and IR35 is still there!
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I would also suggest that this is a disguised employee. I think if your client had a number of business which he offered his services that would help him be outside IR35.
I know a few people that have tried to insist that they are not in it, however, for me I think it's easier to pay tax, NI and sleep at night...
Tight fisted gits only paying for his fuel? Unless the commission is that good that it doesn't matter, I'd be wanting xxp a mile, to cover the other running costs.
You also mentioned commission as an employee, that's absolutely fine, but his commission can't work out less than minimum wage (don't forget to take into account paid holiday when doing the calcs) As a sole trader or Director there's no such thing as minimum wage of course.
Sounds to me that he's being treated as an employee without the security that comes with employment.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Thanks everyone, for your replies. Some good comments. I agree and, from what I understand, whilst he is a sole trader, its the IFAs fault if HMRC deemed him as an employee. Whereas, if he incorporates, it becomes his companies responsibility. That's a bit of a kicker, because obviously he wants to incorporate for tax savings, but is worried about the comeback. And lets face it, the IFA isn't going to take him on as an employee.
Just looking at the car situation... If he did incorporate, I've no idea how you would work out mileage rate, if fuel is being paid by the IFA... presumably, it would be 45p less the fuel element rate set for his car? That's a weird one for sure!
So if for instance your client is caught under IR35 is there an ongoing investigation and a lot of additional work for the accountant/bookkeeper or does HMRC just write to the client and ask them to cough up the tax and NI?
