I suspect some sort of explanation of IR35 would be helpful. Let me get a cup of coffee and I'll follow up with my personal story that should help with context and give an example.
Once upon a time, way back in the last millennium, I worked as an employee for
First Alternative, giving training courses most days, and updating course material / setting up their first website / selling courses / setting up training systems on other days. Then I got tempted away by a former boss to another job, which (I rapidly discovered) was a huge mistake. Six weeks later, I was back teaching for First Alternative, but this time as a contactor and not as an employee.
"We haven't filled your role, Graham, but we're not taking on employees to train any longer". The deal was that I set up a 'shell' company, and invoiced for days that I trained. I was responsible through that company for paying my own taxes and national insurance as appropriate, and I was only paid for the days I worked. I was no longer responsible for the other various 'fill in' tasks, though I did take a couple of extra contract elements to do their web site.
You could - very successfully, I'm sure, argue that at that stage I was to all intents and purposes employed by First Alternative. Over 90% of the income from "Well House Consultants" at that point was from them, and their requirement for a teacher was based on my personal availability - had "Well House Consultants" sent in someone else to do the job, they would have been more than a little surprised. Such arrangements were popular with "employers" as they took out the cost and risk of a full time employee ... they were not popular with the Inland Revenue, and hence the introduction of IR35 in which the Inland Revenue tell the "employer" that they must deduct an amount equivalent to income tax and national insurance prior to contract payments, with the contractor then sorting it out with the Inland Revenue though tax returns, etc.
This (IR35) was, note, something that came in some 20 years ago... and by the time it did, Well House Consultants had spread its wings, and was running its own training courses. We had dozens of clients, and indeed our relationship with First Alternative came to an end within a handful of years and we became far from a "shell" company, so there was zero chance of any of our jobs falling under IR35. However, had I continued contracting purely for First Alternative, I might well have been subjected to its terms.
As a retired specialist / elder statesman these days ... would I be tempted to go back and contract for them as a third life? Certainly not if IR35 were to be applied. For a handful of niche courses, I would end up invoicing an amount of "X" - the historic amount, inflation adjusted. I would then find deductions on 'emergency' rate for income tax, national insurance (1) , and - these days, perhaps - pension (2). And whilst Well House Consultants has now de-registered from
VAT▸ , I wonder how that would have applied. Also (4). For sure, each of these elements paid via First Alternative would in theory have been reclaimable via my tax setup and I would possibly not have had to pay such items as "Well House Consultants" anymore, but
the sheer hassle, time delay, and cost of getting accountants or other experts to sort this out would leave me asking "why do I bother", and indeed not bothering at all.Reading the IPSE post, as I understand it Network Rail have come up with a system under which 99% of contractors are deemed to be within the scope of IR35. And for those substantial numbers of those who are highly skilled experts who are being bought in, it brings considerable extra paperwork and significant expense with accountancy costs and also cash flow as it sorts out in the next year's tax return. Enough to put off a lot of the experts who need to be bought (back) in occasionally with their historic knowledge.
I am not a tax expert ... the above is just my understanding ... check for yourself if in doubt ...
Notes added - thanks to eXpassenger's following post
(1) - would only apply to me for next 15 months due to age
(2) - pension element can be opted out of
(4) - significance I hadn't realised - as a contractor I had considerable investment in tools of trade which I am very doubtful whether I could have claimed as an allowable expense; Well House Consultants typically owned a dozen laptops which were available for delegates to use during course I taught; not as expensive now as they used to be - but our initial setup cost over £10,000 to buy 20 years ago.
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