Q : What does your company do?
A : InPractice Software Ltd supplies mainly to accountants. Accountants and IT Contractors alike have 'phoned to talk at length about this solution-driven approach. This model contract package is devised in conjunction with lawyers, tax specialists and tax lecturers.


Q : What is the InPractice approach?
IR35 usually does not apply to the typical business on the High Street. IR35 enters the picture if the business chooses to work through an agency - after all, in global commerce, which entrepreneur conducts business through an agency? 
The dilemma is how to avoid IR35 and still keep all parties happy. To do that, One-Person Operation needs to:
a - not only contract DIRECT with the end-user client,
b - but also contract direct with the agency to outsource activities such as marketing and debt collection,
c- and also have a legally binding contract with a substitute waiting in the wings.
In other words, conduct business in the way the "entrepreneur on the Clapham Omnibus" would (being the test of reasonability). Whilst tax planning never provides a cast-iron guarantee, the One-Person Operation should in this way have something more solid to argue with, provided the underlying situation genuinely follows what is contracted. So, such a direct contract needs to be strong on tax.


Q: A large corporate has invited my One-Person Co Ltd to carry out specialist IT work but insists the contract is via their nominated agency. The agency's contract wording is in the traditional back-to-back style and so would appear to fall foul of IR35. Neither the large corporate nor the agency are willing to change their position. How do I cope with this situation?
A: You should explain to them that you are being asked to enter into a bargain you may not be able to afford for the exposure to an unquantifiable IR35 tax liability in the future. So, you should negotiate one of these options:
(1) Agree to insert a clause in the back-to-back contract to indemnify both yourself personally and your One-Person Co Ltd from any future tax bills arising as a result of IR35. Please note such an indemnity can prove to be worthless unless backed by a bond in case of an insolvency. Your financial statements may need a disclosure by way of a Contingent Liability Note.
(2) Enter into DIRECT negotiations and contracts between your One-Person Co Ltd and:
a - the end-user client
b - the agency
c - your substitute contractor.

Q : What if the agency insists I work through a Ltd Co?
A : The fireworks may not start until a year or two after 6 April 2000 when tax investigations produce disputed tax assessments.

A meeting is almost always held between a representative of the large corporate and the prospective IT worker. If that stage is not handled well, the Revenue can argue that the meeting in reality resulted in a verbal contract of employment and that the Ltd Co was imposed at the behest of the agency or the client (large corporate). In English Law, the only contracts that have to be in writing to be binding are those relating to Marine Insurance and Land. All other types of contracts are binding when agreed verbally.  Engaging  an individual verbally can be held to be a verbal contract of employment!

If so, the Revenue can look to the end-user client (large corporate) for the balance of IR35 taxes not deducted at source. A large Regulation 49 (payroll regulations) tax assessment on a One-Person Co Ltd may render it insolvent. The Inland Revenue may then look to the end-user client (large corporate) for the remainder of the taxes not deducted at source. It may be argued that the agency creates the legal relations between the One-Person Co Ltd and the client. However, time will show how this matter unfolds but why not take protective measures from the outset by using a model agreement?

Q : Would "InPractice IR35 Model Contract" turn my One-Person Co's situation into that of a business?
A : InPractice IR35 Model Contract is a useful tool to formulate and document your contract for services. However, each situation is unique. This product is not a clever device to circumvent the tax. Answers to the InPractice Fact-Find Checklist would show the overall reality - is it an arrangement of employment nature or that of business nature? Does the One-Person Operation have the  NEGOTIATING POWER (not always the case if their agency is too rigid) to negotiate terms with their client? If weaknesses highlighted by InPractice Fact-Find Checklist are renegotiated, you can turn your tax situation into something more solid. In the landmark tax case Ayrshire Pullman Motor Services and Ritchie v Commissioners of Inland Revenue, Lord Judge Clyde said in his judgment words to the effect that the taxpayer is under no obligation to allow the taxman to put " ... the largest shovel into his stores". So, renegotiation of business terms is a legitimate activity.


Q : In short, how do I survive IR35?
A : You don't have to cave in to IR35. You can save the situation if you are a TRUE enterprise that conducts its operations like other genuine businesses do. Buy a license to InPractice IR35 Model Contract package, renegotiate terms and use it to sign a contract direct with your client. It is not unusual for businesses to outsource marketing and debt collection - Satchi & Satchi marketed a political party in late 90's elections. If an agency is used, buy the Agency IR35 Model Contract and use it to outsource the marketing and debt collection. Doing this may be a culture change (for IT contractors and other One-Person Operations) and some grafting may be required to rearrange business methods but then being in business has never been easy! Businesses need to be innovative. The IR35 hurdle is just another hurdle to clear in business life. Like they say, the tax tail should not be allowed to wag the commercial dog!
A : You don't have to cave in to IR35. You can save the situation if you are a TRUE enterprise that conducts its operations like other genuine businesses do. Buy a license to InPractice IR35 Model Contract package, renegotiate terms and use it to sign a contract direct with your client. It is not unusual for businesses to outsource marketing and debt collection - Satchi & Satchi marketed a political party in late 90's elections. If an agency is used, buy the Agency IR35 Model Contract and use it to outsource the marketing and debt collection. Doing this may be a culture change (for IT contractors and other One-Person Operations) and some grafting may be required to rearrange business methods but then being in business has never been easy! Businesses need to be innovative. The IR35 hurdle is just another hurdle to clear in business life. Like they say, the tax tail should not be allowed to wag the commercial dog!

Q : Can an unincorporated self-employed person use this tool?
A : "Unincorporated Self-Employed IR35 Model Contract", a separate but parallel product, has special clauses relevant to unincorporated self-employed individuals and partnerships. In contract law even one word can make a crucial difference. This tool is used in the same way as for Ltd Co. It is a similar product with the necessary clauses and customisation relating to unincorporated entities.


Q : Do you offer guarantees like someone who sells similar but much more expensive? 
A : We cannot comment on behalf of others but just ask yourself how can a guarantee work for a "disguised employee" given the legislators' attitude? Do you prefer to spend your valuable work-time sitting in courts chasing such guarantees? What assets back up such a guarantee anyway?
InPractice Software on the other hand take a very realistic view. The licensed user of InPractice Model Contract needs to assess the situation with the Fact-Find Checklist and then customise the InPractice Model Contract based on the overall view of the business situation.

Q : Is the InPractice package only for IT operations?
A : No, they are for any one-person operation, including:

- I T Contractors
- Construction Subcontractors
- Medical Freelancers
- Business Consultants
- TV / Film Freelancers
- Accountancy Subcontractors
- Oil industry Freelancers
- Other one-person businesses

Q : I find it expensive to buy InPractice Model Contracts
A : In tax management, the concept of "a contract is a contract is a contract" does not take one very far since even one word can make the crucial difference and the absence of a crucial clause can tip the balance! When IR35 bites, it can result in a four-figure tax liability for the taxpayer, and possibly loss of a client for the accountant. If you open a shop on the high street you would invest in equipping the shop and so being in knowledge business one needs to equip accordingly. Buying InPractice Model Contract has to be an investment decision i.e. will the tool yield the buyer a profit? The introductory price of £149+vat (since last autumn) expired when the product was improved for the Inland Revenue Final Guidelines of 1 February 2000. It is good value-for-money as the professional adviser can:
(a) charge fees,
(b) retain their one-person clients and
(c) help their clients keep their tax bills in control.


Q : Would IR35 effectively turn my operation into an employee?
A : The tax STATUS of One-Person Operations at the present falls into one of the TWO below:
1 - Employment (Schedule E - PAYE) or
2 - Business Profits (Schedule D Case I & II of Income Tax, whether Co or Self-Employed)
It would appear the tax legislation creates a THIRD TAX STATUS:
3 - One-Person operations taxed under IR35.

Natural justice dictates that GENUINE BUSINESSES (whether 1-person operations, 2-person operations, or 100-person operations) are entitled to be taxed as businesses under Schedule D with or without IR35. Therefore, 1-person operations genuinely in business should be able to insist on being taxed under Schedule D.
However, 1-person businesses do need to create documentation and also operate in the same way as genuine businesses do. Take a one-person accountancy operation for example: he/she gets an Engagement Letter (their contract of business terms) signed direct by his/her client; they do not sign some standard agreement devised by some agency! So, the One-Person genuine business should in the same way negotiate terms with his/her client and have a DIRECT contract. Additionally, the One-Person Operation may wish to sign a separate DIRECT contract with an agency to subcontract services such as marketing and debt collection, albeit on a % basis.
So, if you are a genuine entrepreneur in a risk-taking venture with the negotiating power to strike a bargain direct with your client or customer, you need not presume the IR35 legislation would take over your life. You can buy the license and use InPractice Model Contract packages.


Q : How do I keep the AGENCY involved and still avoid IR35 problems?
A :Contracts formulated by agencies would naturally be drafted in favour of the agency without necessarily addressing the tax concerns of the IT contractor. The business relationship between a One-Person Co Ltd and an agency may be primarily that of paying a % for marketing assistance and debt collection. That can be catered for by a direct contract between the agency and the One-Person operation. We sell a separate "One-Person Co and Agency Model Contract" - see order form.


Q : How effective is InPractice IR35 model contract?
A : InPractice IR35 Model Contract is as effective as the reality of the underlying business arrangements of the One-Person operation. If the picture emerging from the answers to the Fact-Find Checklist (provided as a part of package) shows the overall arrangement is that of business nature, this model contract should be an EXCELLENT DEFENCE in normal circumstances. On the other hand, if InPractice Fact-Find Checklist shows it is that of employment nature, no high-powered, legalistic, jargon-filled contract with fancy knobs, bells and whistles or gold gilding can normally be expected to withstand the Taxman's challenge. It was decided in Furniss v Dawson that artificial arrangements (e.g. a Ltd Co of a "disguised employee") can be ignored if the main purpose of such an arrangement was to beat the tax.

Q : Is a non-standard contract (not from agency) the answer?
A: It is normal for independent businesses to have proper written contracts signed, sealed and delivered. However, just a non-standard contract in itself is not the answer. The underlying situation i.e. the terms, are crucial. That is where the InPractice Fact-Find Checklist is crucial - it shows weaknesses to renegotiate. IT Contractors despair too quickly. IT Contractors just need to be entrepreneurial, which does not preclude using agencies to outsource their marketing, debt collection, etc. So, each contract for services needs to be tailored carefully to demonstrate the terms for that unique situation whereas a standard contract is just that, standard.


Q : Not all of my assignments are of business nature
A : You have to "Mix & Match". Assignments of employment nature should be taken on PAYE basis, whereas assignments of business nature should be on invoice basis. Your Tax Return would then declare employment income under Schedule E and your business profits under Schedule D. This is where the InPractice package is invaluable.


Q : Is an assignment lasting more than a month always an employment?
A : Although architects working at the Docklands construction had long assignments, it was agreed they were in business although they worked on one site with massive equipment not owned by the architects! So, a long assignment in itself is not conclusive about being in employment.

In the same way, just being paid by the hour cannot be the deciding factor. What counts is whether overall it is an arrangement of business nature.
In Hall v Lorimer, Mummery J made the following comment which was quoted with approval by Nolan LJ in the Court of Appeal: "In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person's work activity. ... It is a matter of evaluation of the overall effect, which is not necessarily the same as the sum total of all the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another..."


Q : What happens when an assignment is extended?
For efficiency, InPractice IR35 Model Contract uses separate schedules attaching to the main contract:
Schedule A - Work Specifications
Schedule B - Prices, Fees, Disbursements and Other Charges
Schedule C - Plans, Diagrams, Charts.
When an assignment is extended or the fee structure changes or extra work is required, as often happens in commercial life, an additional schedule is signed by both parties and attached to the ongoing contract. In this way, the user does not have to create a replacement contract saving time, cost and effort. This feature helps to make work life easier, an integral feature of all InPractice Software products.

Q : How long has InPractice Model Contract been in existence?
A : The InPractice Model Contract has been in development since the tax changes relating to the Construction Industry Subcontractors - remember those 714 certificates?

Q : What if the accountant does not have the facility to get involved?
A : We shall gladly refer you to an Affilica member who specialises in this type of work.

Q : What should an adviser charge for this extra work?
A : Since this is add-on tax-planning work, the professional is expected to charge an appropriate fee, something approaching the fee that a good tax lawyer would charge - around £400 per contract may not be considered an unreasonable fee.