Moving from permie to mercenary? Avoid a fine - listen to Ben Franklin
IR35: Dear contractors, if you quack like a staffer, you're a staffer
The tax people aren't there to make you happy
Don’t mess with Her Majesty’s Revenue and Customs: remember, they do this for a living. A few months ago the Revenue got in touch to query some figures I had submitted in 2011. I joked that, if I was found to have underpaid, they could let me off, because that’s what they do these days. “Sir,” she sighed, immediately understanding the type of fool she was dealing with, “we never let anyone off.”
The moral of this story is not to avoid making stupid jokes in the presence of authority figures – in my case, this would be too optimistic. The point is that the Revenue doesn’t go out of its way to make us happy. That’s not its job. Your limited company status is a sweet enough deal compared to your former life. Don’t mess it up.
Half man, half duck
There are no rules: to be precise, there are many principles, based on rules, but someone will have to use judgment at some point. Disguised employment is a duck test. If you walk like a duck, and you quack like a duck, you’re a duck.
The Revenue offers a set of questions for you to assess your level of IR35 duckiness (they don’t call it that), but there’s no absolute here. All I can conclude from answering the questions is that everyone I know who does this job is half man, half duck: we waddle a bit, sometimes we quack too.
Therefore, manage your inner duck: The big test (but not the only test) of disguised employment is control. Specifically, do you have any control over how you work? Enough control, and you are unlikely to be judged as an employee.
Build it into your contract and don’t just sign whatever is put under your nose. Note that the bar might be set higher than you think it is. Just because you don’t feel like an employee any more doesn’t mean that you aren’t an employee for tax purposes.
Don’t be greedy: If your contract offers you sweeteners like training and sick pay, you’re an employee. Forget it.
A totally duck-free contract doesn’t exist: the IR35 assessment is done on the basis of likelihood. Some parts of your work may suggest employment, but as long as the majority of it doesn’t, you should be OK. Your contract needs to show that you have control, accept significant liability and risk, or have some right to substitute someone else’s work, but that’s always going to be a matter of degree.
When I was asked to train end users, for example, I couldn’t ask for the right to do it in pyjamas from my kitchen at 2am. Line managers are accountable to other people too. Even if they want to grant you the maximum contractual flexibility to avoid IR35, it’s often not in their political control, for good reasons. So be realistic.
Don’t take my word for it. See the bit above about getting professional help. Benjamin Franklin really did say this one: “Those that won't be counseled can't be helped.” ®