From contract ‘aggro’ to money worries: contractors brought hundreds of challenges to ContractorCalculator’s Contractor Doctor in 2012. We answered them all, and published over 150 contracting guides this year.
To help contractors navigate the year ahead, the Contractor Doctor has drawn together a collection of the key issues raised by contractors during 2012. They broadly fell into three key themes:
- Concerns about IR35
- Contractual disputes
- Financial issues.
Concerns about IR35
Despite the introduction of the business entity tests by HMRC in May 2012, the underlying IR35 legislation has not changed. Most contractors were concerned with the core principles of employment law and status that underpin IR35, such as control, substitution and mutuality of obligation (MOO).
The JLJ Services ruling in December 2011, which resulted in a contractor being found outside IR35 at the start of a contract and inside mid-way through, resulted in some contractors questioning whether their status had changed.
This was closely followed by questions regarding IR35’s silver bullet: substitution. As long as the right of substitution is genuine and unfettered, and even if they are substituting purely to demonstrate their IR35 status, experts suggest a contractor cannot be inside IR35.
Hiring other contractors may also place a contractor outside IR35’s scope, but only if the subcontractor has been hired to do what the contractor’s client originally hired them to do, not something extra.
Contractual disputes
Contractors encountered a range of sharp business practices from agencies and clients during 2012. These included basic challenges, such as agencies offering poor terms and contractors being terminated as a result of injury, through to more complex disputes over who submitted a contractor’s CV to the client first.
Because the UK tax system is so complex, even savvy knowledge workers find it increasingly difficult to understand every aspect of HMRC's rules regarding expenses, tax and investments
The purpose of a contract is to ensure both parties deliver what they agreed at the outset. Some contractors had clients and agencies trying to change their role mid-contract or from what was advertised, or even insisting on enforcing restrictive covenants pre-dating the introduction of the Conduct Regulations.
However, it is not always the agency or client who is in the wrong. Contractors have asked the Contractor Doctor whether they can cancel a contract before it starts, circumvent the agency to contract direct with the client or to contract with a customer of a former employer.
Other contractors are not afraid to use the law when they believe they have a genuine grievance, such as taking legal action when an agency loses them work or when it is lying about margins.
Financial issues
Based on the stream of questions about financial issues fired at the Contractor Doctor, contractors have fully embraced the financial and tax benefits of trading via a limited company or umbrella solutions provider.
However, because the UK tax system is so complex, even savvy knowledge workers find it increasingly difficult to understand every aspect of HMRC’s rules regarding expenses, tax and investments.
Complexities can arise even over things as apparently basic as whether a tablet is tax deductible, how to account for student loan repayments, and whether a contractor can pay their partner or spouse a salary.
Questions to the Contractor Doctor unfortunately revealed that contractors can enjoy limited benefits from using a holiday home as a week-time residence when working on a contract. It is also not possible for contractors to reset the 24 month rule when starting a new contract with a client at a location near to their previous contract.
The economic downturn and resulting impact on contract opportunities has led many contractors to consider career breaks for various reasons. The good news is that contractors can take overseas career breaks and study leave that, if certain conditions are met, can be funded via their contracting business.
If you have a question about contracting and you can’t find an existing answer on ContractorCalculator, then ask the Contractor Doctor.