IR35 and IFA debate

domjandd

Debate in our office to whether a client is caught by IR35. We initially thought he was okay but recently another IFA in the head office (or business premesis) have had his annual accounts completed with the deemed calculation. The set up is similar to larger organisations such as St James Place. The director can do his own timetable (other than a Monday where the firm have a meeting and are requested to be in the office - potential issue)? All income is paid directly to the head office with the % split afterwards (basically a commission of the initial fee to the customer). Also there is a remittance given at the end of the month detailing the client,fee and split. People can walk in off the street as well but in this situation the % split is different. All documents the client uses do not contain his own Limited Company name or details but the head office - could this be changed? The head office cover all the costs such as professional indemnity insurance. Costs such as laptops, train fare, stationery are not paid by head office. There are employees of the 'head office' company such as receptionist, the concept is the % split of commission takes into account these costs incurred by the head office and not paid directly by our client. There would be nothing to stop our client employing someone else to support them should they require this. I am sure this type of set up is not uncommon across the UK and we would appreciate other accountants thoughts. Happy to provide more information if needed. Appreciate your time and hope this question helps others in the future.

reader

I include a link to help you to determine his IR35 status: https://www.gov.uk/guidance/check-employment-status-for-tax

The relationship between the IFA and St James Place needs to be considered:
1) Does St James Place have the right to control, supervise and direct him like an employer would?
2) Can he send a substitute in place of himself? I.e. he bills St James, St James pay him, and he pays the substitute that bills him?
3) Is he obliged to do want he is told and are they obliged to give him work?
4) Is he an office holder, e.g. partner or director of St James Place ? What is his job title?

Other things that may also be worth considering:
5) He is just doing a job/employee-like role or is he working on a project with a fixed end date?
6) Is there anyone at St James Place who does (or did) do his job on a PAYE basis?
7) Are they obliged to pay him an hourly or daily rate?

Other minors things:
8) Yes- the weekly Monday meeting is a problem. It makes him appear as part and parcel of the end client's normal team and activities. Although this is a problem by itself it is not enough to put him inside of IR35.
9) Yes- using the end client's documents/letterhead/email address is a problem. It makes him appear as part and parcel of the end client's normal team and activities. Although this is a problem by itself it is not enough to put him inside of IR35.
10) The head office should not pay for his professional indemnity insurance. He should pay for this himself. Although this is a problem by itself it is not enough to put him inside of IR35.

The answers to questions 1 - 7 are key. Points 8 - 10 are a little irrelevant but do to some extent indicate that he is a bit of a risk.

There are lots of companies that review contracts and working practices and provide insurance for IR35, eg Qdos, Abbey tax, IPSE, Bauer and Cottrell, Law Place, Egos/Roger Sinclair, etc.

domjandd

Wow, thank you so much for taking the time to write such a comprehensive and accurate reply!

We did the employment status and the result was 'could not determine' (can't remember the correct terminology of the result)!

In response to your points:
No, they can't control him and if he was to send a substitute (nothing to say he can't do this) it would be his cost not that of the head office.
If he doesn't work, he doesn't get any 'pay', and they are not obliged to give him work. I am unsure of his job title but he is not an office holder. The commission received is not based on an hourly or daily rate.

Essentially he is working on various projects for various clients, just the fee income is paid to the head office with his split afterwards. As I am aware, nobody in his particular position are employed in the head office. Other employees include the receptionist, a gentleman who 'pulls' a file together and another employee who produces analytical work.

We have suggested to him to approach a company and have an IR35 review and explained it isn't our role to do this. I will pass the suggested names onto him - fantastic.

I must stress how appreciative I am of your reply, I owe you lunch!

reader

With regards to substitution, if your client does not actually exercise the substitution clause any substitution clause is irrelevant.

Unfortunately, there is an urban myth promoted by more risky providers that a substitution clause is a golden bullet however all the case law shows that unless the substitution clause is actually exercised and a substitute actually sent then the substitution clause is a best window dressing and at worse is meaningless.

Consequently it sounds like your client would need to be outside of IR35 based on either control or obligation.

The problem with HMRC's online check employment status for tax service is that it assumes all contractors fail obligation because if the contractor turns up they will get their £500/day or get their commission on the clients given to them.

When is the project end date for the IFA? When does their project or assignment come to an end?

If he finishes his project/assignment more quickly can he leave earlier (without a notice period) but still profit from the original agreed fee?

How long has he been at St James Place (or whoever the employer is) for?