IR35 help!

[ImsorryWilson]

Hello,
I was self-employed (indisputably) till 2018. From 2016 I started doing consultancy work for a solicitors firm. I carried on servicing my own client base as well. it’s going really well with the solicitors firm. I really like the team there.
I began to earn more money again from 2018 because my children were older so I set up a limited company.
I’m now at the point where the reality is that I spend 90% of my working week working for the firm. What’s more because of my specialism Brexit has forced me to transfer most of the work I’ve still been doing for my pre-existing clients into the firm.
I have in effect grown and developed a team around my specialism. One of the employees is going to qualify as a solicitor next month and she has chosen me to be her official mentor. I’m described as being a partner in the firm – it’s a way of showing clients my perceived level of seniority and experience
I’ve always preferred the self-employment route But I’ve learnt that work is all about the people you’re working with and so I’d be prepared to change if necessary.
Am I walking into a tax minefield here? If so what sort of minefield is it? Does the firm have options that would protect us both without making my role much more expensive? Do I?

I don’t want to leave

I think you may well have some potential issues here with IR35, as you sound very “part and parcel” of the solicitors firm. Could you substitute yourself for another subcontractor if you wanted? Does the firm give you work, control or direct this? Do you have an obligation to take work from them? Do you have set holidays, start times, etc controlled by the firm?

What does your contract with them say about the services you’re providing (and the other points above)?

Is the firm small enough to be considered exempt from the upcoming changes to IR35 (I think it’s

Have a look at IPSE, they have some very helpful guidance on this. It IS possible to be outside (even on PS contracts) but the end client has to be prepared to take the risk as previously the onus was on the Contractor but now it’s on the company. You can go inside IR35 and it’s not a total disaster but you will need to charge more in order to end up with the same and you can’t put and exes through. Plus the solicitor may need to give you more “rights” which they might not want to.

I think if there was a HMRC review the mentoring might not help

Do you take any 'commercial risk'? Commissioning services necessary for your work that you pay for directly your self and then re-charge to your client as part of your billing process?

I just had to do an IR35 review of a contract and what made it outside were the following if it helps
More than 1 client
More than 1 contractor working for the ltd co
Can send a substitute
Uses own equipment and resources
Does not attend team meetings (other than those directly related to the project)
Pays own way on work socials
Does not have any management responsibility

It’s not cut and dried even so but this is the kind of thing that can keep you outside IR35

Thank you all. This is appreciated.
I don’t want to stay outside the team/stop the mentoring.

If I am “inside” what changes? The tax that I pay or the tax they pay? Or both?

I probably don’t save much in tax compared to being an employee..... so maybe it wouldn’t make much difference?

I believe IR35 was supposed to come into effect in 2020 but was delayed for 12 months due to Covid.

My client has chosen to relieve themselves of the responsibility and burden by requesting that contractors are employed by an umbrella company. There are a number of calculators online you can use for this. The client proceeded with the original IR35 date as they already had everything in place.

Yes,an umbrella do might be the way to go, but obviously there’s a cost to you associated with that
The question is will The Solicitor want to employ you and give you all the rights and benefits that involves? Or will they want to set up the IR35 contract and the extra admin that involves?

I don’t know.
I don’t know what their or my choices are,.

The best thing would be for the Solicitors to speak to their accountants, who should be best places to advise, although not all accountants are. Actually do you have one? They might know
Look at IPSE as well

IR35 is being implemented in April 2021. So you'll need to act quickly

I would speak with your Accountant who should be able to help you to assess whether you fall within or outside of the legislation. (What you have written, and going on Hoppinggreen's review, it sounds like you are going to be affected). If you are then you will need to approach your client to discuss how to proceed, they may already have procedures in place.

For me there were two options, either become an employee of the client or become employed by the umbrella company. Of the two options, for me, the umbrella company was the better option.

:( I don’t know what an umbrella company is

Google it

@ImsorryWilson

:( I don’t know what an umbrella company is

It's a company that produces umbrellas

An umbrella company is a separate company that acts as an employer for contractors working on fixed-term contracts.

They also serve as an intermediary between the contractor and their end client or agency. Its principle function is to organise payment for the contractor.

To do this they collect the contractor’s earnings from the end client or agency and then pay it onto the contractor after tax and National Insurance Contributions are deducted.

You're getting self employed confused with company law.

You need to start reading.

As a self employed sole trader, there are different rules to your company offering your services for a fee.

You need to make yourself separate from your company otherwise your company just looks like a tax vehicle. So, does your company offer services to legal firms, of which one of the services is you, and you can be replaced, or oversee the work that others do OR is it you that does all the work for this legal firm and they invoice you for services that basically any normal lawyer does? If so you will be in breach of IR35.

“It's a company that produces umbrellas” :)

“If so you will be in breach of IR35.”

What does that mean?
And with what consequence?
What is it that will happen if we do nothing?

You need a good accountant

If there's an investigation, and you are found in breach, then they can ask you or the firm to pay backdated tax and NI. I think.

If you are inside you have to pay employers and employees national insurance and you have to pay income tax. Then only corporation tax on what is left after other expenses. I don't know if you also have to pay an company pension contribution.

Rather than corporation tax on the lot and dividend tax on what you take out.

If you are inspected and found to be inside when you were declaring outside, you'd have to pay the taxes for the period deemed inside and possibly a fine. Have a look on one of the contractor sites for examples of what happens.

Have you ever had your contract reviewed to check its status? If you have the firm who did it can help. though it isn't just your contract but working practices as others have pointed out.

It really sounds like you are a disguised employee and not there to fill a short term hole.

Working through an umbrella company does not get around your status.

Do you have an accountant? If not there are various calculators online which show the tax etc breakdowns for inside and outside contracts.

The answers to all of your questions are on here

More questions? Go here

Ok I’m no expert on ir35 but if you’re described as a partner - why are not a partner? Am guessing their an LLP

You might be best off being recognised as inside IR35 it charging a higher rate (if they’ll pay it) so you end up With the same money in your pocket .

The other way to stack the odds in your favour would be to ensure your contract t is to provide specific pieces of work for them rather than be on just a day rate, but it does sound like you are acting more like an employee so that would be tricky . The mentoring counts against you for IR35 .

I believe IR35 was supposed to come into effect in 2020 but was delayed for 12 months due to Covid.

No, IR35 has been around since the nineties. All that’s changing is who is responsible for the determination and any tax liabilities. If the ops client is within the small company exemption then the onus is on her to make the determination (and also any tax liability).

If you’re inside then you’d want to speak to your accountant asap to change your tax set up, or move to an umbrella company.

Great - you lot are awesome, thank you.

To answer the question"Ok I’m no expert on ir35 but if you’re described as a partner - why are not a partner? Am guessing their an LLP"

• most "partners" in law firms are not true partnership act partners - partner can range from someone owning 100% of business to someone with just an honorary title.

The mentoring and team building is something I particularly enjoy and am particularly good at so I would rather pay a bit more tax than give up on that.

If anyone is able to link to an in-IR35/out-IR35 calculator that would be awesome!