To keep on the right side of IR35, and off HMRC’s highly sensitive radar, contractors are forced to exhibit all sorts of business behaviours that any observer, and certainly most clients, would consider anti-business and, frankly, crazy.
Is this supposed to help us rebalance our economy and enable us to export more of the knowledge services that currently go a long way to make up for the shortfall in goods exports? Our international competitors must be laughing at us.
We recently had a contractor contact the Contractor Doctor in almost terminal despair over IR35. He was clearly outside IR35, but wanted to do the right thing by both IR35 and their client. It caused the clearly highly frustrated contractor to comment:
“I am sure I am not the first person to observe that in order to prove yourself the ‘right’ side of IR35, often the very best defence is to do something that is completely counter-intuitive from a business point of view – for example, turn down any work offered that wasn't in the original objectives, take time off when it is inconvenient to the client, employ a substitute rather than do the work and keep the money yourself – which I find somewhat absurd.”
Look at our recently published guide to collecting evidence that puts you outside IR35, compiled by IR35 expert Andy Vessey of Qdos consulting. You can see how many of the behaviours deemed by case law and HMRC to prove that a contractor is not a disguised employee go beyond absurd – they are downright damaging for any small businessperson.
HMRC considers that if you aren’t able to work for some reason (eg the computer system is down) and get sent home, that proves you are not employed. So, should we all try and prompt a situation where we can’t work for the rest of the day because we’re waiting on someone else? And then we can ask the client if they want to pay us for hanging around all day, or whether they want to send us home and not pay us? How mad is that?
Or what about making a deliberate mistake, waiting for the client to notice the mistake and offering to fix it for free? Many regulated professionals would lose their livelihoods if their professional body thought they were making deliberate mistakes.
And there’s a whole host of behaviours that could have been designed by an expert to be anti-client-service. Why not insist on taking time off at the most inconvenient moment in the project lifecycle, just to prove we’re not controlled?
Or what about insisting to the client that you should work at home – bet that would go down well with an oilfield services firm that wants you on its survey vessel whilst mapping new Arctic gas provinces.
You could refuse to go the extra mile with a client by helping them out briefly on something that is not in your contract. If you really want to wind them up, rather than show goodwill and help them out, which most businesspeople would consider to be normal, argue about it and suggest they pay you extra, and draw up a separate contract for it.
Make no mistake, because the law is what it is, Vessey’s guidance is crucial for killing off an IR35 review before it gets off the ground. Contractors finding themselves in any of the above situations should make sure they keep the evidence to show that IR35 does not affect them.
Yet the government is encouraging such bizarre behaviours, whilst at the same time claiming it is building the world’s most competitive tax system.
Perhaps it’s time IR35 was reviewed again, and its most damaging elements removed. If not, can it really be long before more contractor clients turn to more customer-friendly services providers, particularly those based abroad?