Best IR35 Solution
Could this be the best IR35 solution for contractors?
IR35 is a bit of a joke.
But it’s a very bad joke.
There is nothing finite, or measurable, in defining whether contractors are caught by IR35 or not.
It was only supposed to catch those who were made redundant from a permanent jpb on a Friday and started work on a Monday as a freelancer at the same company on the same job doing the same thing.
Yet, according to HMRC’s now-defunct Business Entity Tests, virtually every contractor was caught by IR35.
This is despite the fact that there was no legal basis for this.
When talking about IR35 factors like Right of Substitution, Mutuality of Obligation and Control it’s like trying to work out how many angels can fit on a pinhead.
You could take the same case to General and Special Commissioners, or the court, and different judges, and different officers, would come out with different verdicts on the same case.
It’s more an informed opinion they have rather than anything quantifiiable.
Original Disguised Employees
There’s the ridicuuous situation where one of the original disguised employees who went from being a permanent employee to a contractor at the same company would be more likely to be able to qualify under Control to be outside IR35 than a career contractor.
There’s the other ridiculous situation where bums-on-seats contractors would be more likely to qualify to be outside IR35 using Right of Substitution than a career contractor who cannot easily be substituted.
Indeed, the more common or garden a contractor is, the more easily he, or she is outside IR35.
This is clearly ridiculous.
Start IR35 From Scratch
So, let’s rip it all up and start from scratch.
At the moment you are outside IR35 till you can be proved to be inside.
Let’s make it that all contractors, when they start contracting, are assumed to be ‘disguised employees’. That’s till they can prove that they are not.
Let’s create something measurable to show whether a contractor is a genuine career contractor or a disguised employee.
Start Off as Disguised Employee
Let me make a suggestion for a best IR35 solution.
That is that every contractor starts off as a disguised employee for taxation pusposes.
Only when they have been a contractor for a while and have had several different clients, can they be considered a career contractor and be able to operate as one for tax purposes.
Let’s put a threshold on it.
Let’s say tha you have had to have been a contractor for 3 years and have had at least three clients, at the same time or consecutively, before you can be called a career contractor.
Prior to that you would be taxed under IR35.
Disguised Employees Caught
To stop people then going on with their third client for ten years or more at the same company let’s say that you cannot spend more than an average of 2 years with each client.
That would allow contractors to stay 3 years or so with a particular client, That’s as long as they averaged less than two years with each client.
This IR35 idea would catch every single one of those original disguised employees, who left work on a Friday and started work on a Monday as a contractor.
Every single one of those would now be caught by IR35 – unless they metamorphosed afterwards into a true career contractor with multiple clients either at the same time or consecutively over a period of time.
Also caught, eventually, would be those who spend ten years at a company after spending a few months at each of a few clients at the start of their contracting careers.
Contract for Services Nonsense
All of this “is it a contract of service or is it a contract for services” argument, which is a nonsense, can be left behind.
It would now be measurable.
You are either a career contractor or a disguised employee (who could go on to become a career contractor).
Every single contractor would now know if they were inside IR35 or outside IR35.
Best IR35 Solution – HMRC Cheating
Of course, we well know, that HMRC, left to their own devices, and if they are allowed to take the decision, would come out with something outrageous as they did with the Business Entity Tests.
They would probably put the criteria to be 10 years as a contractor with ten different clients with an average contract period of no more than a year.
So, these criteria would need to be agreed with an independent expert on who is a career contractor.
No IR35 investigations
There would not be the ridiculous IR35 investigations that take years, cause untold anguish to contractors, and which HMRC usually lose in the end.
It would be easily quantifiable who was inside of IR35 and who was outside.
What the hell does it matter if someone can be substituted or not?
Also, what does it matter if they are told what needs done or they can do it themsleves?
What does it matter if there is a contractual commitment for the contractor to do the work and for the client to pay them or not?
That’s all dancing around the handbags stuff.
Career Contractor Test
The real test is whether the person is a career contractor or a disguised employee.
This would be a simple way where everyone can tell and everyone would know.
If contractors continued to act as career contractors after spending a number of years at a company then that would be clear tax evasion rather than tax avoidance and can be treated as such.
OK, readers what do you think?
Is this a good idea or a bad one?
Would it work or would it not?
Is it the best IR35 solution?
Let’s hear from you in the Comments section below.
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