IT contracting with T1 Enterprenur

Tier 1(Entrepreneur) Policy Guidance version 04/2015 - Page 64 of 74

What is an employee?
A28. Not everyone who works for someone else is an employee.
You can claim points for employees who are:
 part-time and full-time workers; or
 workers under an employment contract.
However, you cannot claim points for a self-employed worker who is contracted to work for you.
In this case the person will have a contract for service and will not be accepted for the award of points as an employee.

Section 1: Contract information

The IR35 tax legislation only applies to UK tax payers who are operating via a limited company. The best time to focus on IR35 issues is before signing a contract, and certainly before starting it.

1.1 Have you already started your contract? Yes

1.2 Are you using your own limited company as the trading vehicle to invoice the agency/client for your services? Yes

1.3 Are you a UK tax payer? Yes

1.4 If you have taken the HMRC Business Entity Test, what was your indicated risk factor? Not taken

Section 2: Substitution

Substitution is one of the three main tests used to determine IR35 status. Employees provide a personal service, and they cannot send someone else in to replace them. Genuine businesses have a “contract for services” with their clients, and can then decide who to send to deliver those services. Having a contractual right to substitute is only considered valid if in reality the client agrees that you can provide a substitute. Also, it is important that your company pays the substitute. If you have already paid for a substitute on the project then this is considered a “silver bullet” and you should have no problems remaining outside IR35. Helpers, who work alongside you, can be a useful pointer to not providing a personal service, but as strong as substitution.

2.1 Substitution: Under the terms of your contract, can you send another contractor to do the work in your place? [This is often known as a ‘substitution clause’] Yes
Whilst you have the clause in your contract, unless this reflects the actual reality (see 2.11) the clause on it's own is not enough to prove substitution is present.
2.2 Helpers: Under the terms of the contract, can you bring in a helper or subcontractor to work alongside you? Yes
Being able to use a helper does point towards being in business on your own account. But on it's own, without substitution, it is not a particularly strong factor in your favour.
2.11 Substitution: In reality, if you were unable to do the work yourself for whatever reason, do you think that your client would allow you to send another contractor to do the work in your place? Yes
The actual reality is more important than just having the clause in your contract. Being able to substitute is a very strong factor in staying outside IR35.
2.21 Helpers: In reality, do you think your client would agree that you can bring in a helper or subcontractor to work alongside you? Yes
This is fairly useful for you, but unless you have actually brought in a helper it is unlikely to be a significant factor during an IR35 investigation.
2.112 Substitution: Have you ever sent another suitably qualified contractor to undertake part of the project in your place, and who your client did not reject? No
Keep trying! Proof of being able to substitute (assuming you pay them - see 2.114) is the strongest defence against an IR35 attack.
2.113 Substitution: Have you ever tried to send another suitably qualified contractor to undertake part of the project in your place and had the client refused to allow them to do so? No

2.211 Helpers: Have you ever brought in a helper or subcontractor, with your clients knowledge, who worked alongside you and your limited company paid their invoices? No

Section 3: Control

Control is one of the three main tests used to determine IR35 status. If the client controls you and how you do the work then there is a “master/servant” relationship present, which is highly indicative of employment. Contractors should avoid becoming a “tail-end Charlie” by being moved from one project to another by the employer, whilst being told exactly how and when to complete any work. A lack of control would be where you are hired to deliver an agreed set of services for a particular project, with flexibility on when you complete the work.

3.1 Do you decide how to do the work yourself, rather than your client instructing you how to complete your work? Yes

3.2 Does your client switch you between projects throughout the course of your contract as your client’s priorities and workflows change? No

3.3 Are you required to work a specific number of hours in a working day and be present at your client’s site within specific hours, for example from 9:00am to 5:00pm? No

3.4 Are you allowed to complete any element of the work specified in your contract away from your client’s site, for example, in your own home office? Yes

3.5 Are you contracted to work on a particular, named project, which is specified in the contract? Yes

3.6 Does your client have workers within their organisation who have the expertise to perform the tasks you have been contracted to perform? Don't know

3.7 Have you ever refused to complete work requested by your client because it was not specified in your original contract? No

3.8 Do you have expertise, skills and experience which is rare in your chosen field? No

3.9 Do you have to ask permission from your client if you wish to take time off? No

Section 4: Mutuality of obligation

Mutuality of Obligation, or “MOO”, is one of the three main tests used to determine IR35 status. There are two parts to MOO. Firstly, if the client offers you some work, are you obliged to take the work on? And secondly, is the client obliged to offer you some work? Employees are told what to do by their bosses, and expected to do it. And, if the employee has nothing to do the boss is expected to find them work to do. Genuine contractors can refuse to do certain work not specified in their contract, and if the work runs out with one client they move on to another. Most courts assume that MOO exists, simply because a firm has offered you work which you have accepted. Whilst there is little case law around MOO, there are different levels of MOO.

4.1 What notice period does your contract specify your client must give you if they are terminating the contract? No notice period

4.2 What notice period does your contract specify you must give if terminating the contract? No notice period

4.3 If the current project you are working on was completed early, before your current contract end date, would the client offer you other work which you would you feel obliged to take on? No

4.4 Are there skills you posses that have not been specified in your contract and that your client is asking you to supply and you have agreed to do so? No

Section 5: Financial risk

Being subject to financial risk is an indicator of being in business and is a secondary factor considered in IR35 cases. Employees are not normally financially at risk if they make mistakes in their work. If you provide services based on a fixed price then this exposes you to more risk that being paid an hourly or daily rate. Likewise, if you are obliged to fix any errors in your work without charging further fees then this also indicates a degree of financial risk.

5.1 Have you provided a fixed-price quotation for any part of the project? No

5.2 In the event that errors have been discovered in work you have completed, are you expected to correct these errors without charging additional fees? No
Businesses that provide services are typically obliged to fix errors in their work for free. Ideally your contract should have a clause indicating that for a set period after the end date you will fix errors in your work.
Section 6: Part and parcel

Being “part and parcel” is a secondary factor considered in IR35 cases. Employees become part of the company furniture, indicated by a number of factors outlined in these questions. It’s important for contractors to take a client-supplier approach when working for clients and not become ingrained into their business to the extent that they are indistinguishable between being a contractor or employee.

6.1 Is your current client your last permanent employer? No

6.2 Have you attended or received any training that has been paid for by your client? No

6.3 Have you ever been included within the client’s formal appraisal or performance management scheme? No

6.4 Have you ever received, or do you expect to receive, a performance-related bonus that client employees also receive for the work you complete on your contract? No

6.5 Do you use the staff canteen or restaurant which is also subsidised? No

6.6 Has your client provided you with and paid for business cards with your name on them? No

6.7 Do you have to ask for permission or authorization to take time off? No

6.8 Do you have a security pass or identification badge which does not specify that you are a temporary contractor/visitor? No

6.9 Have you attended social events hosted by the client and paid for by the client? No

6.10 Are you included on any internal client organisation charts where you are not specifically identified as a contractor? No

Section 7: In Business on own account

Being able to show that you are genuinely in business is a secondary factor considered in IR35 cases. If you have multiple clients, a website, business cards, and so on then you are clearly running your own business. On the other hand, if you have one client, and contractually you aren’t allowed to take on further clients whilst working for them then it would be hard to convince the taxman that you are a genuine business.

7.1 Does your contract include any clauses that restrict you from performing paid work from another client during the contract? No

7.2 Have you any of the following specifically for your own limited company:

Business cards? Yes

Company stationary, such as letterhead? Yes

VAT registration? Yes

Business phone/fax line? Yes

Broadband connection? Yes

A website with domain name relevant to your company and email addresses? Yes

Any marketing materials, such as brochures or flyers? Yes

A logo or trade mark? Yes

A company credit/charge card? Yes

Professional Indemnity insurance? Yes

7.3 Does your business have other revenue streams in addition to your current contract? Yes

7.4 Have you spent money on training yourself on skills which are used in your contracting career? Yes

Section 8: Equipment

Providing your own equipment is a secondary factor considered in IR35 cases. Employees are not expected to provide any of their own equipment at all. However, genuine businesses are. But the equipment needs to be significant and costly to provide a strong indicator towards being in business.

8.1 Are you required to provide your own equipment that is significant and integral to the completing project? No

8.2 Do you have tools/products that you have developed yourself, which you can use/provide, which gives you a competitive advantage over other contractors? No

Section 9: Intention of parties

The original intention of the parties can be a factor when deciding IR35 cases that are borderline. Whilst being a minor factor it is still important to include a clause in your contract stating both parties intentions.

9.1 Does your contract include a specific clause that states that the intention of the parties is to create a relationship that is one of business/client and supplier? Yes

Disclaimer

This IR35 status test has been designed based on expert opinion and existing case law regarding employment status.

Whilst ContractorCalculator has ensured that the logic used in the test is accurate, the fact remains that employment status (and IR35 status) for any individual is unknown until (a) the contract has been completed, and (b) the status has been actually tested or challenged by HMRC.

Determining IR35 status is not based on a set of objective facts. There are some clear indicators of self-employment, like having used a substitute, and some clear indicators of being a disguised employee – being heavily controlled and being part and parcel of the clients company. Between those two ends is a grey area, and the whole picture needs to be taken into account when determining status. And to further confuse matters, different experts may give different opinions, as will judges, based on their own knowledge and interpretation of case law.

HMRC have the right to impose penalties on individuals who have not taken “reasonable steps” to ensure that they have made a correct decision when evaluating their own status. This online test alone might not be considered sufficient on it's own to satisfy that test. However, an independent review by a tax expert with specialist knowledge of IR35 probably would satisfy that test, and we recommend that every contractor has each and every contract reviewed, along with their working conditions. It’s not expensive to do, and it means you can often remove potential issues from the outset, before they then become problems.

So, in summary, whilst this free status testing is designed to help you understand more about your IR35 position, ContractorCalculator does not accept any liability whatsoever for any decisions you make as a result of using the tool.

My understanding from above "So a self-employed person with a "contract for service" with you, can not be treated as your employee and you will not be awarded points for employing him"

Similarly, if (my limited company) does a "contract for service" with a recruitment agency will not be regarded as employment.

I have found unless u have a clause of substitute and replacement it in my opinion fits the bill however that too would welcome trouble from home office there are people who wouldnt mind a refusal and challenging it in court and there are people who want to stick to no in an ambiguous situation I am the second type, none of the contract Tier 1 E have been given a clean extension as far as I know rest is secondary whether they won in court as those chances are 5050. Why go down the route where you have seen failures I wish them all best of luck but one unfortunate clause in contract would make you in breach of your stay and the stress which comes with it

solomondid wrote:We will need to send in evidence of business activities which would clearly show where the income is coming from where its being spent and what is your investment etc... Contracting will definitely fetch far more than what you would ever spend how do you suggest we invest 50K we would thus form a trail of unnecessary activities

Trying to hoodwink HO is not correct. The intention of this visa is to set up own business and if working as an IT contractor whichever way shown in my opinion is wrong and not legal. If you get caught its trouble.