Introduction
IR35 has now been around since April 2000. In terms of pass or fail, the process is fairly well established: If you can’t get the right type of contract you will fail. If you can, then you will pass.
Tough to Negotiate IR35 Free Contracts
Given the current market conditions (lots of supply and next to no demand) it becomes very difficult to negotiate with agencies to try and get contracts changed from a blatant "Fail IR35" type contract to an "Obvious Pass IR35" contract. This could be for a number of reasons. Here’s two:
- They do not want to spend their money on legal fees when there are plenty more contractors lined up to take the position who will not bother even attempting to get the contract in a favourable IR35 position.
- The nature of the contract is such that the client does not actually want a contract for services, but wants a contractor, with the necessary skills that they can treat like a permanent member of staff and move around various projects.
Unfortunately, you will find excuse 2 being used by many agents simply to avoid the hassle of renegotiating contracts with both you and their client. The situation was entirely different a couple of years ago, but hey let’s not depress ourselves by thinking about it. Saying that, if the agent tells you the client won’t do it, you could always put in a quick phone call to the company and check the facts. Depending on how well you think you did at interview and how much you think the client wants you will determine how insistent you can be on getting the changes made. If you are going to call their bluff, then make sure the company knows the real reason why you are not going to accept the contract. It would be unfavourable if the agent passed on the message to the client that ‘you had found some other work’, instead of ‘we were not prepared to change the contract and we didn’t even ask you, and therefore they went elsewhere, but here’s someone else who could do it’. I think you get the picture. It’s a cynical one, but one worth being aware of.
So, let’s assume that you get sucked into the "Fail IR35" vortex of doom. What next?
If you fail IR35
If you are not planning on employing staff and building a company, it is time to close the limited company and use an umbrella. Here are some reasons why you should do this:
Monetary
- In purely monetary terms a limited company is more expensive than the alternatives.
- An umbrella can cost as little as £25 per month (£300 per year). An accountancy firm will cost you around £1000 a year when you take all the extra costs into account.
- Under the limited company, if you fail IR35 you only get the 5% allowance for expenses. Under an umbrella you can get full expenses. Granted, this argument only applies if you spend more than 5%.
- Under the limited company you need to purchase indemnity insurance. Under an umbrella it is provided.
Less Hassle
- Under the umbrella you don’t have to worry about doing as much paperwork. There is less to do, and with some of the umbrella companies the whole solution can be accessed on line.
Conclusion
If you fail IR35 and your company is never going to be used as anything other than a tax saving vehicle, then it is time to move to an umbrella to save money and hassle.