Why IR35 Supervision is Crazy
IR35 Supervision, Direction or Control, along with the Right of Substitution and Mutuality of Obligation are the three main factors which determine if a contractor is inside IR35 or out.
However, at least two of these are absolutely crazy as factors pointing to a contractor being inside IR35.
We will illustrate why IR35 Supervision being a major IR35 Factor is absolutley crazy.
Inside IR35 or Outside IR35
The control and supervision test applies to a contractor to see if he, or she, should be inside or outside of IR35.
If a contractor gets a task from his, or her client company, and they tell him how to do it and supervise him while doing it then he, or she is inside IR35.
However, if the contractor agrees a task with the company and the time taken to do it and then decides how it is best done and where it is best done (at the company or at home) and supervises himself, or herself, then he, or she, is outside IR35.
Maybe that seems to make sense – but it doesn’t, and I’ll explain why.
History of IR35
Remember why IR35 came about in the first place?
What happened was that companies were laying off employees on a Friday and then hiring them again on the Monday as contractors. They were doing the same job at the same location for the same firm.
It had tax advantages for both the employer company and for the new ‘contractor’.
The Press kicked up a fuss about this. We all know what happens when the press kick up a fuss about something.
The Government feel they must act and act decisively.
If you ever want to do things your way, the best way to do it would be by buying a newspaper or TV station rather than by standing for election.
However, this is just an aside to this article.
New Labour Brought in IR35
So, the New Labour Government of Tony Blair’s decided that they would bring in IR35. This would stop this nefarious parctice.
They called those who suddenly metamorhosed from permanet employees to contractors at the same company, over just a weekend, ‘disguised employees’. And they were right.
They were missing out on taxes and NI contributions and that had to stop.
However, the IR35 legislation caught not only those disguised employees in their nets but also contractors who had been operating as contractors for many years.
With that knowledge, let me now explain why Control as an IR35 factor is crazy.
An Example of IR35 and Control
Imagine that there is a company we’ll call Swishbox.
They have an IT Project Manager employee called Nigel who has been working for years at the company and knows the company and the IT department inside out as well as all of the working practices at SwishBox.
The week before, he had taken on a contractor called Bob to work on a project that Nigel was leading, doing some development work
Suddenly there the quick flip.
Nigel leaves the company on the Friday and starts again on the Monday but as a contractor this time.
This type of thing was precisely the reason that IR35 was set up.
IR35 Supervision – Nigel is Uncontrolled
However, Nigel doesn’t need to be supervised.
He knows the company, the business and the project better than anyone else.
He decides what he should do, how long his tasks should take and how he should do them.
No one supervises him doing the tasks and no one shows him how to do them.
Why would they?
He is the Project Manager and knows how to do them better than anyone else.
IR35 Supervision – Bob the Experienced Contractor
So, let’s come to Bob.
Bob has been a contractor for 25 years at 20 different client companies.
He has remained as a developer.
Furthermore, he does have some of the skills (but not all) needed to do his tasks on the Project.
He obviously doesn’t know the company’s business that well as he only started last week. As you know, the way that every IT department operates is always different in several ways.
No two clients have the same way of working even if they use the same skills.
Ther processes, or methodologies or procedures may be different.
Contractor Allocated Tasks
So Nigel allocates Bob some programmes to develop.
He tells Bob how long that the tasks should take, 5 days for this task, 8 days for this task.
He tells Bob how he wants them done.
Bob fills in a task timesheet for Nigel and Nigel comes round each week to see how Bob is doing in terms of the schedule.
If he is getting behind schedule Nigel tries to find out the problem and how he can get back on schedule maybe by telling Bob that he needs to do some extra hours.
IR35 Control and the Contractor
So, let us see. How is Control working here?
Who is in control and who is under control?
Why the person under control is none other than Bob, the career contractor of 25 years’ standing and 20 different contracts.
He is now 50 and he started contracting as a 25-year-old.
Now, they are telling him he is a disguised employee.
Uncontrolled Contractor
So, who is not being controlled?
Why it is Nigel, who only became a contractor on the Monday.
And yet, people like Nigel were precisely why IR35 was set up.
So, under the definition of Control as an IR35 Factor, Bob is caught by IR35, as he is supervised and Nigel is outside IR35, as he suprvises himself.
Isn’t that just crazy?
Bob’s a disguised employee and Nigel isn’t.
Doesn’t it just show you how stupid that IR35 is and how it operates?
Nigel is the very epitome of the type of person that IR35 was set up to catch – and yet under the Control classification he is outside IR35.
Less Likely to Need Control
Of course, those people who jump ship over the weekend from employee to contractors are always less likely to need Control as they are far less likely to need control than a genuine contractor hired by the company, as they know how the company works and are far less likely to need Control than someone who comes in from the outside.
So, who is the disguised employee them?
Is it Nigel who was a permanent employee at the same company last Friday?
Or is Bob who started contracting at 25 and is now 50 having serviced no fewer than 20 clients over the years?
That’s right the ‘disgusied employee’, under the Supervision and Control classification of IR35 is none other than Bob.
Isn’t that just crazy?
That’s why IR35 Supervision, Direction or Control is crazy as an IR35 factor.
It’s a mad, mad world this IR35 world that contractors have got to live in.
The Right of Substitution is just as crazy but more of that anon.
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