What’s IR35 got to do with Solicitors?

Most traditional firms of Solicitors will employ their people on a permanent basis, with peaks in demand or absences being covered by temporary team members on occasion. Most traditional firms of Solicitors won’t therefore be giving much thought to IR35 legislation, unless their clients ask them for advice on the subject. But in the evolving world of new model law firms such as nexa, “Off Payroll” legislation such as IR35 is a little more taxing (ahem)!

IR35 needs little introduction, but in essence it is the government’s attempt to ensure that workers who provide services through a limited company, but who as a matter of fact would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.

You’ll notice that this scenario could apply to Consultants engaged by a new model law firm. At nexa, for example, our Consultant lawyers provide their services through a limited company to nexa law, and as a firm we contract with the clients for the provision of those services. On the face of it, you might think this is exactly the type of arrangement which IR35 set out to prohibit. But the nature of the relationship between nexa and its lawyers bears closer scrutiny.

IR35 does not seek to prevent genuine contractors in business on their own account from contracting through a limited liability entity. It’s designed to ensure that people do not use companies to disguise their remuneration when it should otherwise have been earned through PAYE. In order to establish whether a relationship is one of employment or genuine contractor, it’s necessary to look to common law for the accepted test of employment status. Employment relationships have these characteristics:

Control: what degree of control does the client have over what, how, when and where the worker completes the work?

Substitution: is personal service by the worker required, or can the worker send a substitute in their place?

Mutuality of obligation: describes the extent to which the ‘employer’ is obliged to offer work, and the worker is obligated to accept it.

At nexa, we don’t specify when, where or how you work. We do require that you comply with your regulatory requirements to the SRA, but such a factor is a neutral indicator when it comes to assessing employment status. Put simply, whether employee or contractor you cannot contract yourself out of a professional obligation. As a Consultant at nexa you are the Director of your own business and are therefore entitled to employ or provide people to support you to carry out your work, or indeed substitute yourself by referring work to another nexa Consultant.

Certainly, there is no guarantee of winning clients or getting work as a Consultant at nexa. Wo do refer matters to our Consultants on occasion, but there is no obligation to accept any work that’s offered to you. In fact, you have total freedom to pick and choose the work you do and for which clients. More than that, we anticipate you that will find and build most of the relationships which you need to thrive as a Consultant Solicitor.

In addition to the employment test, there are other characteristics of the relationship to be considered, such as whether as a Consultant you take a genuine financial risk, or whether you are effectively paid a salary by another means. At nexa, we are a good fit for entrepreneurial Solicitors who are able to build their own business under our brand. There’s certainly no guaranteed success, but those committed to building their practice and growing their income do very well under our model.

So, if IR35 was making you doubt whether the Consultant route was right for you, we’d say you should have little concern. But ultimately the decision as to whether you consider yourself to be an employee or a genuine contractor is one that you must make. Under IR35, nexa is classified as a “small” entity and as such it is our Consultants who must decide whether they are in fact true contractors. In larger enterprises, the determination must be made by the business itself rather than the contractor.

Whilst making your own determination may sound like a big responsibility, we believe you’d rather have the freedom to determine your own way of working. Compare that to the position of the larger new model firms out there; some of which we suspect are having difficult conversations with their Consultants about whether they are truly in business on their own account, or in fact employees by another name.

If you want to run your own practice with nexa’s support, get in touch with Eliot Hibbert today using eliot.hibbert@nexa.law