IT contracting with T1 Enterprenur

[kaps84]

Note: I myself as an experienced database administrator (into oracle, mysql, etc) want to work through my own limited company. But the visa rule books thus far has confused and restricted me NOT to proceed in the same field. This forum is of immense help where people like you are contributing and clearing doubts.

Is it possible for you to share such a sample contract that can be a landmark example.

Thanks again,
kaps

[kaps84]

Hi Sonia,

After careful consideration, My opinion is inclining to as of yours.
I have been reading through various material/websites (like from http://www.contractorcalculator.co.uk/ and "contract for service" and "contract of service" thing) since morning after reading your valuable response on the forum.

Also, I have read through T1_E_guidance and noticed the difference between "for" and "of" for the first time.

To back the opinion guide clarifies on Who can be your employee as:

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.

see the bold above:

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.

Now the big question is what all is regarded as "contract for service", in purview of T1 Ent visa.
I am posting the dummy questionnaire in my subsequent post.

[kaps84]

Here you go with the questionnaire that I found on http://www.contractorcalculator.co.uk/
The answers in 'yes','No','Don't know' are only dummy answers given by me while answering the questionnaire. Please use your discretion while answering it for your self.

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.

[kaps84]

@ Sonia @solomon, Your thoughts please.

[solomondid]

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

I personally wouldnt go into contracting as yet and focus on growing business with some unique idea

[Sonia...]

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.

Kaps you are getting confused between the issue of contracting through an agency and the subject of claiming points for your employees. It is a totally separate issue. Your business has to employ (run payroll/PAYE) two locals for a year or one local for two years anyways. Employing anyone directly makes it a contract of service but it has nothing to do with the area we are focusing right now.

Kaps I am a PHP developer myself. Well as far as contracts/clauses are concerned, all good agencies have contract templates that comply with agency legislation (contract for services). Those contracts are fully checked/reviewed by agency's solicitors to avoid any HMRC penalty in the longer run . What I would recommend, once you pass your interview, just get it confirmed from your agent whether he is asking you to sign a legislation complied contract. In addition you may also review the contract yourself or have it reviewed by any of your solicitors in case there is any clause that may cause future discrepancies by HMRC and you would like your agency to have it edited.

You do not need to inform your agent in the beginning whether you are in a tier 1 entrepreneur visa . Just tell them you have the status and are fully allowed to work as a contractor. Once you pass the the interview, they will request your documents. Hopefully there wont any prob once they found out you are on tier 1 entrepreneur. However, if it turns out to be an issue as quite a few agencies are taking time to comprehend and accept this category, just email them the above home office quote with it link which states you are allowed to contract unless it contract for services. One of my peers have also contacted home office and requested them to confirm it through an email which he further forwarded to the agency.

Unluckily few agencies are as confused about this category as many of the members are in this forum, but if you communicate it well, they will certainly change their mind. I have been successful in convincing them in the past.

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

Solomon If you are too worried about getting a refusal, why don't you send your other contract (once which has not been signed with agency) at the time of extension. You can work on as many contracts at one time and don't necessarily have to send all of them to HO at the time of extension. In other words you can work on a small project (building a web/app for anyone) from your office on weekends and submit that contract to HO. Please refer to my post no. 10 in this discussion which particularly addresses this issue.

[Sonia...]

Admin: Your message contains too few characters.

[solomondid]

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

[kaps84]

@Sonia, Thanks for your inputs. It makes sense to me.
Would you mind asking me, when is your visa extn due? You can choose to PM me if you wish to. I have left a PM to you.

[kaps84]

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

Solomon, as part of your genuine business, you will be employing 2 people and paying them the wages. Now if you are employing two technical people along with yourself. You will be paying them a good amount. Also, if you employee a few employees on minimum wages that will also be adding to your expenditure. Moreover, if you going for your own office (maybe rented) and stationary, furniture, etc will cost you. And you as the director of the company will also be taking the salary even if minimum of GBP 900 per month (below tax threshold). And not the least (may be at the end) you can buy (purchase) an office of yours, isn't it? it is very well allowed but only for business use (not residential).

The above are just few of the expenses I have mentioned. However, as the employee of your own company you can reimburse various kind of expenses like car/travel/phone, etc for yourself or your employees.

And trust that this is a "genuine business" for you and not any kind of bypassing the rules. It is going to be your future for a long term.

@solomon, @Sonia, your thoughts please.

[ds007]

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.

[Sonia...]

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.

Everything discussed in this forum is totally legal and as per the tier 1 entrepreneur policy guidance so far. Can you please provide the HO reference (rather than an opinion) of your statement that working as an IT contractor is illegal? also what makes you think that working as a contractor is not part of setting up your business?

[Gladiator21]

Sonia thank you for all your research and insightful posts which will help many of us.

I would like to add my experience too in this thread. I am working as a contractor through an agency for a government client. Few days after the joining I got asked by the Department if I fall within IR35 regulation which is a policy to verify working practices of each contractor working for them. They wanted a written proof from a registered accountant or solicitor. I was confused what to do as I read on the internet about IR35 and its consequences which is related to tax and more than that it checks our working practices as a service provider.

Being on a Entrepreneur Tier 1 visa, it was a stressful situation for me and was not sure what would be the outcome of this regulation, was wondering if I would be terminated. After a bit of research I got hold of IR35 expert accountant to check and get the written proof if I fall within IR35 category along with the reasons to support the decision. I was glad that he confirmed from my contract that I Do Not Fall within IR35 category which is because of the clauses in my contract (more or less matches with the points Sonia stated above). The format of the contract was a standard one that most of the Agencies use.

One of the paragraph mentioned in the certificate received from the IR35 specialist accountant is copied below which would help the concerned people,


"I have read through the contract carefully and based on current case law and guidance, in my opinion it will allow you to account for the proceeds of this contract outside the rules of IR35. In order to be caught by the rules of IR35, HMRC would have to prove that the arrangement was akin to a contract of employment (contract of service) rather than a contract for services.

When forming an opinion on your IR35 status, there are many factors that need to be taken into
account. As I am sure you are aware IR35 is never a straight ‘Inside or Outside’ answer. It is all based on
Case Law.

There are three essential factors which case law states must ALL apply if you are to be identified as an
employee (Inside the Rules of IR35) there must be:
i. Sufficient control in the contract and in practice to create a master/servant relationship
ii. A provision of your personal service
iii. A mutuality of obligations between you and the client

If we can then satisfy ourselves that just one of the above factors is not incorporated into your contract,
we are able to form an opinion that you are Outside the Rules of IR35. In my opinion, this contract confirms all of these factors are not incorporated into your contract.
In my opinion, this contract confirms all of these factors are not incorporated into your contract. "

The format of the contract was a standard one that most of the Agencies use. That said, people who are worried about working as a contractor through an agency have some hopes as far as my experience is concerned.

[nicks_85]

@Everyone who is part of this Discussion.
I following Immigration board website since long long time. Today I have registered and putting my reply for the first time, This is my first post.

I am also working as IT contractor, We are two partners and we both have two seperate clients,
Apart from this , we have small client for providing IT services , but our two clients are fixed currently Where we are providing services like Linux admin and .net programming.

We are getting our head around since long time to prove our contract is contract for service, Because HO has not given any clear indication about what documents will support the argument that its contract for services and contract of services. We have approach UK based Immigration advisory firm.

I have asked specific question to ask to HO about How to prove on papers that contract is for services.

When HO replied based on the circumstances , HO said to look at below link to assesments.
https://www.gov.uk/government/collectio ... f-employed

Hence, there is currently no such way or fixed documents to prove or which assesment body they will entertain.

I think we all should raise this to HO about clarification to add in the " document we require section " in the policy guidance of T1 E.

This will give us clarity about going for extension and will make sure that Extension for all the IT contractors will be smooth.

Going down the route whether our contract is Inside or outside IR35,

I have used this BET's https://www.gov.uk/government/publicati ... tity-tests
Which is right now showing withdrawn , hence we cant prove on basis of this entity tests as well.

If HO not willing to provide any documentation related facts to prove whether its Contract For service or Contract of service, the only document can be proved is contract itself.

I am again planning to consult one more solicitor for different opinion, Let us know your thoughts.

[stak]

Think this is still an issue I believe for all IT contractors who are going for further extensions.

Some contribution has been made in the recent post here, http://www.immigrationboards.com/uk-tie ... 88534.html

@Sonia, @kaps84, @solomon - appraciate that you have researched well enough and would be nice if you could put in your thoughts too.

[solomondid]

I always been against the thought of contracting on T1E status lets hear Sonia if she still continued and where does she stand now