What's the point of inside IR35 contracts?

[miklcct]

A lot of IT contractors have moved abroad to avoid IR35, some carrying on doing the same work they used to do, but now living abroad and working via a "foreign" subsidy of the same employer rather than for the UK subsidiary! I've got a couple of clients who "contract" for UK banks, one now lives in Spain, the other in Canada, both still doing exactly the same work as before but now doing it from outside the UK - they were thinking of emigrating anyway, but IR35 was the push they needed! Another client works for a firm specialising in mergers and acquisitions of a City firm, used to spend winter in her Portugal "holiday home" but has now moved there permanently to avoid IR35, again still doing the same work for the same firm, but now paid by their European branch! Not only does the UK now not get any tax/nic from them at all, they're not commuting by train anymore either, so not buying season tickets - they're just occasionally flying in/out when necessary for meetings etc (carefully keeping below the number of days of "residence" to avoid becoming UK tax resident!).

I suspect you’re right, IR35 + businesses hosting everything in AWS has shrunk that commuter traffic recently

It wouldn't surprise me if there were quite a few in the world of IT contracting, though that world has contracted a lot since IR35 made it a lot less worthwhile, with people often heading back into permanent roles, plus much more of it is remote working now.

I am looking to start a web development business. Part of my business will be to provide service to clients, for example, develop websites for them. This is what contracting is about, and if I have freedom to decide when I work and what technology I use to deliver the product, and get paid when the product is complete, I will be outside IR35.

IR35 means disguised employment. If a contract is inside IR35, why don't people just find fixed-term employment instead? My first job after graduation was a fixed-term employment, renewable every 12 months. Also why do people head back to permanent roles? The point of contracting is mainly to escape a never-ending 9-5 lifestyle by conducting my own business!

A problem of employment is that I have to find a company where the working time and location enables me to avoid peak-hour train fare. Being a genuine contractor, I can avoid this problem by arranging my work day to travel on off-peak train services to get to client meetings.

Another point of being a contractor is that I can build my own intellectual property during my work, while in employment I gain nothing at the end apart from my salary, and I can't use any knowledge in it for my future work.

I just don't see the point of inside IR35, where you get none of the contractor benefits (own hours, own product, full commercial risk) and none of the employee benefits (pension, holiday pay, sick pay). Can anyone advise what actually the people quoted above do, to the extent that they even emigrate to avoid IR35?

 

[Bletchleyite]

IR35 means disguised employment. If a contract is inside IR35, why don't people just find fixed-term employment instead? My first job after graduation was a fixed-term employment, renewable every 12 months.

Isn't that subject to IR35 as well? I thought it was.

Also why do people head back to permanent roles? The point of contracting is mainly to escape a never-ending 9-5 lifestyle by conducting my own business!

There are plenty of permanent roles such as the one I'm in where you get the "feel" of contracting with none of the insecurity, i.e. bouncing around between different clients. I quite like this as it offers me both enough stability and enough variety. That's fairly attractive, and offers more or less the same thing as classic IT contracting. Typically that offered more money for the less security, but IR35 near enough removes this. Hence people going back to this sort of permanent role.

A problem of employment is that I have to find a company where the working time and location enables me to avoid peak-hour train fare.

No, you don't have to. You can simply pay it.

Another point of being a contractor is that I can build my own intellectual property during my work

Generally the kind of contractor subject to IR35 doesn't do this, the IP is property of the contracting company. What you're more talking about is running your own business, not contracting.

 

[miklcct]

Isn't that subject to IR35 as well? I thought it was.

It was a proper employment, i.e. I was on the company payroll with full employment rights including holidays and pension, with the employment ending in 12 months unless renewed.

Generally the kind of contractor subject to IR35 doesn't do this, the IP is property of the contracting company. What you're more talking about is running your own business, not contracting.

That's also a point distinguishing disguised employees and genuine outside IR35 contractors as well. Genuine contractors operate their own businesses.

 

[Phil56]

If a contract is inside IR35, why don't people just find fixed-term employment instead?

Because a lot of employers don't want permanent employees - they don't want the risks/responsibilities of having to pay sick pay, redundancy, termination notice/redundancy, risks of being sued for discrimination, holiday pay, apprenticeship levies, employers pension contributions, benefits in kind, etc all comparable to their other permanent employees. By using freelancers, they can avoid all that risk/liability and pass it onto the worker - hence the usually higher hourly rate as the quid-pro-quo. Pre IR35, the worker got the benefit of generally lower tax bills, but because of IR35, that's no longer the case and in fact the worker now bears all the risks/costs including employers NIC, agency costs, sick pay, only basic holidays, apprenticeship levy etc etc, hence the collapse of the freelancer market in certain industries.

I'm sure the employee would love the security of "proper" employment rather than having to freelancer via an agency, but employers don't want that.

== Doublepost prevention - post automatically merged: 8 Jan 2023 ==

My first job after graduation was a fixed-term employment, renewable every 12 months.

The employer still has the risk/responsibility of sick pay, potentially having to give the same remuneration package and benefits as other staff to avoid discrimination claims, employers NIC, employers pension and apprenticeship levy. If the contract is renewed enough times, the employee can become "permanent" by default and therefore eligible for redundancy, notice pay, etc., which employers don't want to risk.

 

[miklcct]

Pre IR35, the worker got the benefit of generally lower tax bills, but because of IR35, that's no longer the case and in fact the worker now bears all the risks/costs including employers NIC, agency costs, sick pay, only basic holidays, apprenticeship levy etc etc, hence the collapse of the freelancer market in certain industries.

So in those industry have those people who don't want permanent employment generally moved to fixed-term employment instead? For example, in those industries, what's the normal working model if one's plan is to work 8 months every year, and leave the country without working for 4 months over the winter?