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  • So I'm gonna talk about our 35 the basic concept and how it affects you contractors on possibly some freelances.

  • It's the first question, really, is what it is.

  • I are 35.

  • It's banded around a lot.

  • There's a lot on Google.

  • It's a lot of talk about it, a lot of noise about 35 in fact, recently the noise about 35 ramped up as actually, it's in the public domain, and a lot of legislation has now been passed.

  • But let me take you back to the basic concepts and the fundamentals of I 35.

  • In a nutshell.

  • Are 35 is a piece of legislation that was concocted by HMRC and the government way back in 1999 2000.

  • So it's been around for a very, very long time on DDE in its most purists and fundamental of form.

  • What is it trying to do?

  • A liar 35 is trying to do is assess contractors and freelances.

  • Are you independent enough to be able to call yourself a contract a freelancer for a particular client on, actually, then operate outside of I 35?

  • Or are you just a disguised.

  • Implore you so in substance.

  • Are you doing exactly the same as you would a permanent employee or an equivalent Permanent employees?

  • But just getting the tax benefits because your tax regime is under the income tax rules as opposed to the corporation and dividend tax rules.

  • They're the fundamentals of I 35.

  • So what does it mean by disguise Employee?

  • What is the concept of a disguise?

  • Employees or the definition, Shall we say So?

  • Let's look at this a little bit more careful, and I'm gonna give you an example.

  • So back in the 19 nineties and the early noughties here in the U.

  • K.

  • What was happening there was an explosion of I t.

  • So with it, a lot of I t specialists, these guys on dhe people were very, very specialised technical specialists in the respective fields of I two.

  • Now they were majority of them were in already permanent positions for medium to large organizations, bound by a employment contract with their employers.

  • What was happening and there were a lot of them were being advised.

  • This is they were coming to the Friday quitting their permanent job.

  • I given notice to sort of council, or shall we say, get out their permanent contract?

  • And they were coming back on the Monday in many instances, a lot of them in the same role for the same company that they had left on the Friday on that they were coming back is limited company contractors.

  • So in essence, what was happening is in substance.

  • They were coming back to exactly the same job.

  • They were doing exactly the same thing from the same processes.

  • Same results with same behaviors in the same structure but their legal former change.

  • Now, instead of being paid three p a y e on a monthly salary that would be impaired gross by the client quite often through an agency into their limited company.

  • By doing that, a whole new set of tax rules opened up for them.

  • They were allowed to offset certain legitimate expenses, were paying corporation tax on they were subject to the dividend tax rules on Dhe.

  • Certainly back then, in the late 19 alone, early noughties, this regime was far more favorable then the income tax regime, and actually remain so up until recent history, based on our experience, years and years of looking after limited company contractors of freelances.

  • What we often found is in some instances, some contractors and freelancers were getting paid up to 40% Maur When I've been getting paid, I mean, in terms of a combination of their gross income on their take, home pay was making them 40% better off than a equivalent permanent employees.

  • Now you can see how attractive that was, and soon the world started to spread amongst contractors.

  • It start to spread very, very quickly, very rapidly.

  • In fact, a lot of agencies were promoting this with Artie contractors.

  • And then it went from game for mighty contractors, to the financial industry, to other types of contractors and freelances as well under Soon before you knew it, contractors and freelances that that were working just absolutely went through the roof in the noughties on, even in the early tens in this particular decade.

  • So there's a reason behind why a limited company contractor really became very, very popular.

  • That's just one of the reasons, but one of the other reasons was obviously the flexibility of working the right to choose your clients.

  • Sometimes you know there's a whole raft of benefits that will come into the contractors freelancers.

  • So essentially, Hmrc and the government were sort of clocked on to this, and they introduced the ire 35 legislation.

  • Now, essentially, the question is what determines whether a contractor or freelancer is inside or outside of I 35?

  • That's what we're going to go through now on.

  • There's no one particular defining factor.

  • It's a combination of factors that determine whether you're generally in or generally out on dhe.

  • The key thing here to remember as things current Earth things currently stand with the legislation.

  • Um, I 35 is assessed on a contract by contract basis, and that will continue to be so even after April 2020.

  • So the first fact on the first point is Barnaby the most simplest one, and that's about the contract.

  • Now it's a very simple one.

  • Is there a contract between yourself, the individual and you're inclined, or is it with your legal nto, the limited company or umbrella company, in this case with the end client?

  • So it's a very, very simple one.

  • If there is a contract between yourself, Andi the end client, but yet you're limited companies being paid, then already.

  • You're pretty much Fowler by 35 rules and you'll end up being inside.

  • Now, this is very, very, very rarely happens.

  • But we have seen instances of this happening will be it, Ray.

  • The next one is all about control.

  • Now, this is a big one who controls who.

  • Now, I'm gonna use an analogy with this one.

  • An example.

  • Let's say in your house you invite a tradesman kitchen fits of him on that so that kitchen fitter comes in on you designed the new kitchen.

  • You know, you've told him what you want.

  • You, you know, made arrangement in terms of the finances.

  • And they've given you quite accepted, etcetera.

  • Now that tradesman is going to come in on finish the job, it's a project for him now, whether he comes in at eight in the morning or nine in the morning or 10 in the morning, You know, quite often they're not.

  • You know, it's not for you to determine its for you to negotiate with that trades person think anything as long as they finish the job on budget and in a reasonable time as agreed, then more or less, they're gonna let them get on with it now.

  • That's the key factor here when you go off is a contract or freelancer.

  • For these large organizations in particular, what happens is the coach of that organization is very, very much blends with permanent employees.

  • When contractors come in, you know, they're very much blend in terms of that culture.

  • So what does that mean?

  • That means you start a certain time.

  • It's very unlikely if you turn up to them and say, Well, you know, I'm gonna come in at 11.

  • I'm gonna go at nine.

  • It's very unlikely that's accepted.

  • It does happen.

  • In some cases, there is flexibility, but more often than not, it's not so.

  • Therefore, that's an element of control.

  • What else is control?

  • Well, is it?

  • You know, is that client telling you what to do?

  • What work to do, you know, Are they guiding you overly or you guiding them?

  • You bring this school your skills and experience.

  • The guy then to control is a very, very important one.

  • And again, it's one of the indicators, which is generally, you know, either in or outside of our 35.

  • The next one is mutuality of a bigger obligation.

  • Now again, Another big one.

  • Neutrality of obligations.

  • Quite simple.

  • Are you obliged to accept that the work being given to you has to be done?

  • A What are you going in there?

  • Are you determining what work needs to be done?

  • So again, I'll go back to the analogy off the kitchen fit of the trades person that comes into your house.

  • Now you're gonna sit there and you gotta discuss with the kitchen fitter.

  • What needs to be done?

  • The pipe work needs to be done.

  • The kitchen needs to be fitted in various different things.

  • Gonna be fitted in no more often than not.

  • The kitchen fitter is the expert is the personal experience in the expert.

  • So there will be guiding you, although you want it in a particular way according to your design and according to whatever you've picked.

  • But generally speaking, they're gonna be guiding you.

  • Now, if you turn up to the kitchen veteran sale, by the way, while you're at it, could you just mop my floor?

  • Likelihood the kitchen fit is going to say Well, hang about.

  • That's really not part of my remit on.

  • I refuse to do that where's again?

  • Once you're in a medium or large organization, quite often you could be in a project where you could be in what's called a business as usual role.

  • And if you're in that particular role, it's very, very common for a manager or someone else in the team.

  • To come along to you is a contract and say, By the way, I'm just checking this thing.

  • Can you get this done?

  • You know, it's it's often that you can't refuse that.

  • The next thing quite influential one is what's called a write off substitution.

  • Now again, going back to that trades person.

  • Quite often, you finalize details on the trades persons coming in the side of the kitchen.

  • They could then bring in a junior member of their team.

  • Or they could bring in, you know, a partner in They say, Here you go.

  • Here's a specifications Kitchen.

  • You know, I'm gonna brief you for half an hour.

  • You get on with it on, you get X winds at dawn.

  • They can then fly off, probably going out to give a quote to somebody else.

  • We're going to have a spot of lunch.

  • Whatever it is, they may want to do.

  • But the fact of the matter is they have that right to substitute.

  • As long as the job gets done to the standard you want it to to the specifications.

  • You want it to factor the memories he can bring in whoever he wants.

  • As long as it's legal.

  • That's the right substitution.

  • Now again, when you go into the medium on that larger organizations as contractors, quite often what happens is you will not have that right substitution.

  • Even if it's Britain into the contract, you're sitting there, you're the expert.

  • You're the one with the intellectual knowledge that the expertise, the experience and it's you that they have recruited.

  • It's you they want on board for that project without being you roll on.

  • Dhe.

  • If you were to turn up to your manager or you know whoever it may be in the organization and say, Oh, hang about, you know, I'm just gonna send in a junior member of my team to kind of, you know, worked for me for the day again.

  • It's very, very rare that in substance, that would be except acceptable.

  • So again, that right substitution more than likely in substance doesn't exist on if it doesn't exist again.

  • It's more of the waiting towards being inside of our 35.

  • The next one is financial wrists.

  • Again, let's go back to our trades person or kitchen fitter kitchen pictures done that.

  • It is a fixed price that you're gonna pay him on.

  • At the end of the day, he's got to complete the job to a specific standard on everything's gonna be working with a point to be 50 property.

  • The electrics are gonna be done.

  • The tones are gonna be put on.

  • You know, the kitchen units have got to be right now.

  • Let's just say he's completed the job and you've gone to expect it inspected.

  • He's walked off, he's gone with his money and you've gone to inspect it Now, per the contract.

  • Most likelihood is, if there are defects in the work, then you could go back after the trades person thio, recover any financial losses or get them to sort of, you know, make good those defects on.

  • Therefore, the trace person is in very be taking the financial risk for any financial loss of things that may go wrong with the with the job that he's done now again, going to the medium and large size firm you go in as a contractor.

  • You may be working on a particular project or a B a U role, but there are still risks in I, T and Finance.

  • Whatever you may be doing, there are risks.

  • Let's say you're working on I t project on a piece of software or process, and in the end you complete that process.

  • But it completely falls, and your input has bean pretty significant in it on it's identified that actually, it's something you did in the coding that made that software for.

  • As a result, the client ended up with a financial loss.

  • Key question is here.

  • Are you taking