When considering whether an individual would be an end-user’s employee for IR35 purposes if you took away his personal services company, HMRC will pay particular attention to how far his role can be said to be integrated into the business of that end-user. Some peripheral involvement is absolutely fine, but the greater the degree of commitment and the more integral the role to the function of the end-user’s business, the higher the likelihood that new IR35 will bite on it in April next year.
Let us turn to well-known legal thinker Martina Navratilova for some guidance:
“The difference between involvement and commitment” she explained, “is like ham and eggs – the chicken is involved but the pig is committed“. Therefore, end-users seeking not to have to tax their PSC contractors need those individuals to be more like chickens – rush in, make a lot of noise, add something distinct to the corporate plate and then flap off again, unscathed by the whole process. However, that same chicken will be in a different position if the end-user’s principal product is coq au vin. So how do you ensure that your PSC contractors remain as Martina’s poultry and not her porkers? How do you minimise the scope for argument that they are integrated into the business?
- Don’t give them job titles (other than Consultant), entries in the corporate phonebook, the same laptop as your permanent employees, invitations to the staff Christmas party, a name-plate on the door, business cards, etc.
- Don’t give them long-term contracts or roles without which the business would quickly suffer harm. Ideally they should be ancillary to the end-user’s product, rather than actually delivering it, and certainly better in some back-room support or advisory function than facing clients on the front line.
- Don’t put them at a former employee’s desk doing the same thing as its previous occupant. Nobody will believe you, especially then if you also build them or the services they provide into your marketing literature in any capacity.
- Try to avoid being inclusive or helpful to them in any way. The whole point is that they should not be part of the team, not be part of your core offering, not be part of the big company family, etc. They should bring their own expertise so ideally you don’t want to train them, provide their tools of the trade or offer them access to internal development opportunities of the sort you might offer to your employed staff. Don’t let them into your EAP, any staff discounts, insurance covers, office away-days, etc.
- So far as you can, keep a reasonably constant turnover of PSC contractors even if it would be easier just to keep the ones you already have and trust.
The trouble with all of this, of course, is that it puts a coach-and-four through all accepted principles of good management. You might reduce your chances of having to apply IR35 next year, but you lose the benefits of teamwork, of an engaged workforce (regardless of contractual status), of branding and proper quality control and of client relationships. Each user of PSC contractors will need to make a judgement about this and do it quickly – is the commercial cost of keeping those contractors at a long and rigid arm’s length really worth it? Or would it be an exercise in clearly strained legal artificiality which no-one, contractor or end-user, would ultimately be able to keep up? You might think you can live on eggs alone, but sometimes, more than anything else and despite all you have been told about its being bad for you, you just need bacon.