Time sheets and contract extensions: Ask Andy Answers
It’s now almost three months since the IR35 reforms came into effect in the private sector, and we are still welcoming questions around the off-payroll legislation. This month, our Head of Tax, Andy Vessey, fielded questions on umbrella companies, timesheets, and contract extensions. Read on for the answers, and to find out how to submit your questions to Andy.
This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant for any tax advice.
I provide services to several companies in outside IR35 contracts, and one of them insists that timesheets are submitted. My partner, who works as Director for a UK PLC, and has several outside contractors, does not request they submit timesheets and only invoices against the contractual agreement. Should I complete the timesheet?
In most instances timesheets are only used for budgetary purposes, i.e., checking that the fee charged by the sales invoice correlates to the timesheet and that the end client is getting value for money. This is quite acceptable and does not amount to control being exerted over working time. If this is the case in your scenario, then you should not be concerned about the imposition of timesheets, particularly if there are more important factors that have placed your contract outside IR35.
Blanket banning of pre-approved lists is rife. Each agency is using its own preferred umbrella companies, so if you go on ten different assignments, you may end up using ten different umbrella companies which are expensive to run. How can one company be responsible for assessing another company’s tax affairs, where is this in company law?
This is a tax issue and not a company law issue. The off-payroll rules require public sector bodies, and medium and large-sized companies to determine a worker’s employment status so that the correct tax treatment can be applied. Failure to abide by tax law results in penalisation, so unfortunately these hiring organisations have no choice in the matter.
I have been working for a client for more than two years on multiple small IT projects. This was done through two separate contracts and multiple extensions. The first contract terminated after 18 months and started a new one after a month's gap. The contract was outside IR35 as per status determination done by the client and myself (through IR35 status tools). The agent is now processing another extension. My questions are:
1) Will the long period of association with a client trigger an IR35 investigation?
2) What are the points I need to consider to cover any scenario that can come up due to this?
All enquires are risk assessment based. However, we do not know what HMRC’s risk criteria is. Nevertheless, it is reasonable to suggest that HMRC will generally be seeking to take up IR35 enquiries that have the potential to produce significant tax and NIC yield. If your company has been generating significant fees over a good number of years with the same end client, and you have been extracting profits from your company substantially as dividends, then this may be of interest to HMRC, although not the only factor. Other considerations may be the industry sector, the nature of your services, and the overall arrangements.
Right of control, personal service, and mutuality of obligation (MOO) are the three key tests of employment status. If you have two of these resting in your favour, then this should be sufficient to demonstrate that your contract sits outside of IR35. In theory, one of these tests pointing towards self-employment should be sufficient to disprove that IR35 applies, but given HMRC’s narrow interpretation of MOO it is prudent to set the bar at a minimum of two. Other significant factors include financial risk, business on own account, provision of own equipment and integration, so establishing that some or all of these favour self-employment as well, will help in developing the overall picture that your contract(s) are not one of service, i.e. employment.
During any IR35 enquiry, HMRC will always ask a contractor to provide evidence of why they considered their contracts to be ‘outside’ IR35. You have properly fulfilled your obligations in this respect, but I would recommend that you add further documentary evidence to your IR35 armoury in the form of a signed Statement of Working Practices, jointly signed by you and an end client representative who can properly vouch for your working practices. This would be extremely useful in helping to expedite any future IR35 enquiry.
How to Ask Andy…
You can use our online form to submit your IR35 questions to Andy Vessey, and he’ll do his best to answer your questions on this blog.
And if you need to check the status of an engagement, one option you could look at is the Kingsbridge Status Tool. Developed by Andy himself, for just £50 plus VAT, you can use our award-winning tool to check the strengths and weaknesses of your engagement. Once you have your result, you will get a full report of your engagement, which you can send to your client if necessary.