Contract IR35 points from QDOS review

[TheCyclingProgrammer]

My first time doing anything through an agency in ages. Contract looked really good to me but it has come back as a fail from QDOS on three points:

1. The description of services in the schedule is a bit vague. Agency claimed this was better for IR35 (a new one to me). I've actually already flagged myself and the agency is happy for a more specific description of the services to be provided and the project I'm working on to be used.

2. "Clause 2.5(a) - This clause is damaging with regards to IR35 as it is binding the individual
Representative to the services. This could suggest that the personal service of the individual are
required to fulfil the obligations of the contract. If the clause is there for commercial purposes only (i.e,
to protect the commercial interests of the client) then this would be acceptable from an IR35
perspective. Please seek confirmation from the agency in relation to this."

3. Clause 6.9 – The right to provide a substitute is one of the most important tests in determining IR35
status. It is therefore crucial there is a strong clause within the contract to reflect the fact that the
contractor can supply a substitute. This clause should be improved upon by removing the words,
“consent” and replacing with ‘agreement’ - as the word ‘consent’ weakens this clause and suggests
that the provision of a substitute could be at the discretion of the Client or Employment Business. It is
also rather critical that a substitute is paid for by the contractor and the clause should be elaborated
upon to explicitly state that the contractor's company would be responsible for all costs associated in
providing a substitute.

So looking at 2.5(a), it is:

2.5 it is authorised as agent on behalf of each Representative, to bind the Named Representative to this clause and any Representative to clauses 3, 6.3 and 6.5 but not further or otherwise and in accepting this agreement it agrees on behalf of the Named Representative during and after this agreement
(a) that if a Guarantee is applicable in the event of breach of this agreement by the Supplier the Named Representative shall, upon receipt of a written request by [agency name], perform or discharge the obligations of the Supplier due under or arising from this agreement, and

Personally I don't think "personal service" is the be all and end all of IR35, especially if you're covered on mutuality of obligation and direction and control (the contract is particularly good IMO on D&C, QDOS haven't raised it and I'll be working remotely). It might be simplest to get them to change this to "Representative" instead of "Named Representative", as whilst the latter refers to me directly, the former refers to me "or any other suitable alternate or additional personnel provided by the Supplier to perform any part or all of the Services on its behalf".

And 6.9, the RoS clause:

If a person other than the Named Representative is to perform any part or all of the Services on behalf of the Supplier whether by way of sub-contract or otherwise, the Supplier may use such person provided only that it has the prior written consent of [agency name] which consent will not be withheld in the case of a suitably qualified person in respect of whom the Supplier has given warranties identical to those contained in clause 2 other than clause 2.5. The Supplier may not in those circumstances charge for any agreed lead in time.

Getting them to add a clause making it clear I'm responsible for all costs seems fine, but I'm not really following QDOS' logic here that the word "agreement" is somehow better than "consent". The clause seems reasonably unfettered to me - my reading of it is that consent will be given as long as the substitute is qualified.

Any suggestions? I think QDOS's determination of "FAIL - inside IR35" is a bit dramatic.

[malvolio]

I suggest you stick with Qdos's expert view for two reasons:

The notional contract that will be created to test your IR35 status is absolutely dependent on the level of personal service so I agree with their opinion.

Consent and Agreement are not even close to being synonyms. "Consent" means the client is the sole arbiter and therefore can exercise significant control over the contract, "agreement" that you and they have come to a mutually acceptable solution.

HTH.

[northernladuk]

1. The description of services in the schedule is a bit vague. Agency claimed this was better for IR35 (a new one to me). I've actually already flagged myself and the agency is happy for a more specific description of the services to be provided and the project I'm working on to be used.

Here is a clue as to what bit of information isn't worth the paper it's not written on in that paragraph. Agency incompetence isn't new one on anyone

2. "Clause 2.5(a) - This clause is damaging with regards to IR35 as it is binding the individual
Representative to the services. This could suggest that the personal service of the individual are
required to fulfil the obligations of the contract. If the clause is there for commercial purposes only (i.e,
to protect the commercial interests of the client) then this would be acceptable from an IR35
perspective. Please seek confirmation from the agency in relation to this."

I'd concur. Naming you looks like it's between the person and the agent which his bad. Nominating an assigned representative that will be attending site on the first day is OK. Nothing wrong with advising who is turning up on site. Binding the contract to them isn't good at all. It makes the company aspect a bit of a sham. In court they say they only accept <name> then it's going to be hard to argue it's between agent and a company.

3. Clause 6.9 – The right to provide a substitute is one of the most important tests in determining IR35
status.

I'd disagree with this and I'm surprised QDOS is stating this. Kate Cottrell herself has stated RoS is a minor one now even though it's still considered to be one of the three pillars. I'm sure in the latest win that was posted on here recently it was skipped over. I'd agree with the next statement that there is a strong clause and it's unfettered but beyond that it can't be proven so not that strong.

It is therefore crucial there is a strong clause within the contract to reflect the fact that the
contractor can supply a substitute. This clause should be improved upon by removing the words,
“consent” and replacing with ‘agreement’ - as the word ‘consent’ weakens this clause and suggests
that the provision of a substitute could be at the discretion of the Client or Employment Business. It is
also rather critical that a substitute is paid for by the contractor and the clause should be elaborated
upon to explicitly state that the contractor's company would be responsible for all costs associated in
providing a substitute.

Agree with the above. That's the unfettered part. The fact they want to bind you personally to the contract also ruins your RoS as well by the way so double reason to get rid of the problem in 2.5
Interesting point about the elaboration. I don't remember seeing this elaboration much in the past and many contractors just don't understand it's for them to bear the cost of finding someone and doing a proper hand over so they can substitute, not just be a body turning up that needs getting up to speed on clients time/money. IMO it definitely can't do any harm being there but as long as the RoS is unfettered I don't think it adds that much value.

Personally I don't think "personal service" is the be all and end all of IR35, especially if you're covered on mutuality of obligation and direction and control (the contract is particularly good IMO on D&C, QDOS haven't raised it and I'll be working remotely). It might be simplest to get them to change this to "Representative" instead of "Named Representative", as whilst the latter refers to me directly, the former refers to me "or any other suitable alternate or additional personnel provided by the Supplier to perform any part or all of the Services on its behalf".

Kind of agree. Bearing in mind in an investigation they'll pick on anything that they think might give them a quick win 'personal service' will be very tempting to pick on so be safe and get rid of it.

Getting them to add a clause making it clear I'm responsible for all costs seems fine, but I'm not really following QDOS' logic here that the word "agreement" is somehow better than "consent". The clause seems reasonably unfettered to me - my reading of it is that consent will be given as long as the substitute is qualified.

You could be right but better safe than sorry.

Any suggestions? I think QDOS's determination of "FAIL - inside IR35" is a bit dramatic.

Overall yes I'd agree it's strongly worded looking at the actual points they make but the issue about binding you personal is an absolute no no to me. The RoS and costs, as long as was unfettered would be OK. Very easy to word properly and remove any doubt though.

All the above are the musings of a pillock though so DYOR

[DeludedKitten]

Doesn't 2.5(a) just bind any representative that you are sending to perform the work that you are contracted to perform? Maybe I'm missing something here (I'm not sure I understand it fully anyway!) but that was my reading of it.

In terms of the substitution clause, it looks reasonable to me - where is the fettering (is that the opposite of being unfettered?)? You need to agree someone with the agency, and they cannot refuse them if they are suitable. Adding in the bit about being responsible for paying the substitute seems reasonable for clarity but I'm not convinced that it would be needed in any legal situation since your company is the entity that has the contract.

[DeludedKitten]

I'd disagree with this and I'm surprised QDOS is stating this. Kate Cottrell herself has stated RoS is a minor one now even though it's still considered to be one of the three pillars. I'm sure in the latest win that was posted on here recently it was skipped over. I'd agree with the next statement that there is a strong clause and it's unfettered but beyond that it can't be proven so not that strong.

As far back as 2004 when JMW Ltd lost at EAT, the tribunal held that the right of substitution (even though the client said they would refuse to accept a substitute!) was the important thing. Recent cases support this, despite HMRC refusing to accept those decisions.

I appreciate JMW was an employment rather than a taxation tribunal but it did set a precedent.

[northernladuk]

As far back as 2004 when JMW Ltd lost at EAT, the tribunal held that the right of substitution (even though the client said they would refuse to accept a substitute!) was the important thing. Recent cases support this, despite HMRC refusing to accept those decisions.

I appreciate JMW was an employment rather than a taxation tribunal but it did set a precedent.

Which proves its a minor point.

[DeludedKitten]

Which proves its a minor point.

Minor in the eyes of HMRC, yes.

In the eyes of the contractor, it proves that it's one of the three pillars of self employment and enough to win an investigation on.

[malvolio]

Which proves its a minor point.

A minor point that is still embedded in case law and which has been used as a point of proof, so don't dismiss it so lightly. It's far better to have a strong RoS even if neither party will ever use it, if only because you can't use it if you're an employee. IR35 is settled on minor pointers every time (apart from the latest debacle of course) so take all the straws to load on HMRC's camel.

[TheCyclingProgrammer]

NLUK - 2.5 certainly doesn't bind me personally to the whole contract, only a couple of specific clauses. It binds the "Named Representative" (i.e. me) to 2.5(a)(b) and (c).

It also binds any representative (which is defined as *anyone* provided by MyCo) to clauses regarding confidentiality, security and use of facilities (all fine), assignment of any IP rights and a clause clarifying that there is no intention to create a contract of employment between any parties. QDOS has stated that these are fine as they are standard, reasonable and not specific to me personally.

When I spoke to QDOS they explained that these clauses (2.5) are usually added for commercial reasons and to protect the agency's interests and it might be enough to simply clarify that.

Other than this one clause, there's nothing in the contract to imply it is anything other than a B2B contract and the RoS is still, IMO, fairly strong, but I will go with QDOS' advice that "agreement" is more reflective of a B2B clause rather than "consent" which implies that permission is required. That said I'm with NLUK on substitution clauses - it's probably the one thing in practice that is hardly ever likely to be used. I still think MOO and D&C are far more important but for as long as a RoS remains one of the three pillars of being outside IR35 I guess it's worth having.

I've proposed to the agency:

* A more specific description of the services to be provided in the schedule, naming the specific project I'm being brought in to work on and making it clear that all services relate to this specific project.

* That 2.5 is clarified, ideally changed to bind to the Supplier or even better, points 2a, b and c removed entirely.

* Change "consent" to "agreement" and append a bit about being responsible for any associated costs in supplying a substitute.

[northernladuk]

Sounds spot on and I can't see why the agent would have any problems with those.

Don't QDOS deal with the agent on your behalf though?