Kingsbridge IR35 Insurance

[northernladuk]

The client is responsible for the decision, since I'm on a direct contract it's good to know outside IR35, my friend is merely advising me on what outside IR35 means.

Why are you relying on someone else telling you what it means? This is your livihood and your income? Wouldn't it make a bit of sense that you know? How can you expect to work on an outside IR35 contract when you don't know what it entails.

What a disaster this thread is.

[ShandyDrinker]

Actually this is a very important topic. For all those stating that it's now the client's responsibility, you may find yourselves in exactly the same situation as I have recently that you manage to eventually get a nice crisp SDS out of the client, only to find that in the contract you have there are clauses effectively indemnifying the agency for TAX/NICs which, while made sense when your limited company was responsible for the determination, hence TAX & NICS, no longer makes sense in the post April 2021 world.

While I understand that the transfer of tax liabilities from client->fee-payer/agency->limited company is contrary to the legislation, it is not stopping agencies from leaving these clauses in their contracts, presumably also reflected in the client/agency contract.

The current Qdos contractor insurance offering does not cover this edge case whereas Kingsbridge have spotted a gap in the market.

In short, the crux of the problem here, if you don't undertake due diligence with your outside IR35 contract, is that, while the end client may be making the determination, you as the contractor may be inadvertently indemnifying them by the contract clauses you have agreed to.

As I have been told repeatedly, until the legislation (i.e. prevention of transfer of liabilities) is tested in court, it is just not known whether the contract clauses will stand up under scrutiny in court. I don't know about anyone else, but I don't want to be that test case.

I suspect there will be many people who are just so relieved to get an outside determination, they'll just sign up anyway.

[eek]

Actually this is a very important topic. For all those stating that it's now the client's responsibility, you may find yourselves in exactly the same situation as I have recently that you manage to eventually get a nice crisp SDS out of the client, only to find that in the contract you have there are clauses effectively indemnifying the agency for TAX/NICs which, while made sense when your limited company was responsible for the determination, hence TAX & NICS, no longer makes sense in the post April 2021 world.

While I understand that the transfer of tax liabilities from client->fee-payer/agency->limited company is contrary to the legislation, it is not stopping agencies from leaving these clauses in their contracts, presumably also reflected in the client/agency contract.

The current Qdos contractor insurance offering does not cover this edge case whereas Kingsbridge have spotted a gap in the market.

In short, the crux of the problem here, if you don't undertake due diligence with your outside IR35 contract, is that, while the end client may be making the determination, you as the contractor may be inadvertently indemnifying them by the contract clauses you have agreed to.

As I have been told repeatedly, until the legislation (i.e. prevention of transfer of liabilities) is tested in court, it is just not known whether the contract clauses will stand up under scrutiny in court. I don't know about anyone else, but I don't want to be that test case.

I suspect there will be many people who are just so relieved to get an outside determination, they'll just sign up anywhere.

Now you may say that's unfair but that is what HMRC were saying in their seminars.

Their logic went as follows (it's insane but bear with me)

SDS determination of outside is made.
SDS determination is appealed (you what) and a new determination of inside is given.

How does the client recover the money to pay the tax if the contract has now finished? HMRC were suggesting that you needed clauses in the contract with the contractor to recover the money.

Now it's highly unlikely that such an event is likely to occur but HMRC weren't legally competent - they were trying to answer questions in the way an agency would want to here the solution - pass the issue elsewhere.

And I strongly suspect Kingsbridge isn't covering that scenario but that would be the one I was most concerned about because the default logic of any client being visited by HMRC won't be to go to court it will be to change the determination and see if they can recover the money.

Personally I would be:
1) getting a time limit placed on the clause - allowing recovery if requested within the first 90 days (i.e. during the period when a SDS is required to be issued)
2) looking for a policy that covered writing an fighting an SDS appeal statement were a determination made that was outside.

[ShandyDrinker]

Now you may say that's unfair but that is what HMRC were saying in their seminars.

Their logic went as follows (it's insane but bear with me)

SDS determination of outside is made.
SDS determination is appealed (you what) and a new determination of inside is given.

How does the client recover the money to pay the tax if the contract has now finished? HMRC were suggesting that you needed clauses in the contract with the contractor to recover the money.

Now it's highly unlikely that such an event is likely to occur but HMRC weren't legally competent - they were trying to answer questions in the way an agency would want to here the solution - pass the issue elsewhere.

I wasn't aware of that but makes perfect sense now - I only ever attended webinars HMRC we giving for contractors and not agencies/clients.

So if they're now baking this into the system, people really do need to be aware.

Sadly this follows a larger macro-economic theme that I despair of in this day and age and that's to push as much of the tax burden and risk down onto the individual who is likely to have the least amount of resources to fight back.

[eek]

I wasn't aware of that but makes perfect sense now - I only ever attended webinars HMRC we giving for contractors and not agencies/clients.

So if they're now baking this into the system, people really do need to be aware.

Sadly this follows a larger macro-economic theme that I despair of in this day and age and that's to push as much of the tax burden and risk down onto the individual who is likely to have the least amount of resources to fight back.

This has little to do with tax and everything about agencies wanting to maximise their profits. In this case though you can see the issue - a middle agency may be working at 3-5% margin but are at risk of getting a 15% (Employer NI) bill.

Also never attend HMRC seminars intended for you - they will tell you less than you already know - the interesting seminars to attend are the ones for your counter-party (which is why I went to the agency one to see what I needed to work against).

[ShandyDrinker]

This has little to do with tax and everything about agencies wanting to maximise their profits. In this case though you can see the issue - a middle agency may be working at 3-5% margin but are at risk of getting a 15% (Employer NI) bill.

Also never attend HMRC seminars intended for you - they will tell you less than you already know - the interesting seminars to attend are the ones for your counter-party (which is why I went to the agency one to see what I needed to work against).

I understand precisely what you mean about the counterparty risk and the risk to the middle agency.

In a sense though it is missing my point. As the responsibility now lies with the client to make the determination, in the event of an incorrect determination, they should bear the costs, not be able to pass it down the supply chain due to contract clauses as I have seen. It makes a mockery of what I understand the legislation states in that if there are Tax/NICs due, it is the client that should ultimately be able to pay them.

For me, what you are saying that HMRC has advised clients/agencies is actually nothing short of scandalous. For the clients it really is a case of heads they win, tails the contractor loses. If you have evidence of this, please can you PM me as it is something I would provide to my local MP the next time I see him yet again about the off-payroll rules and IR35 as I believe this is completely contrary to the intention of the legislation.

[ladymuck]

I understand precisely what you mean about the counterparty risk and the risk to the middle agency.

In a sense though it is missing my point. As the responsibility now lies with the client to make the determination, in the event of an incorrect determination, they should bear the costs, not be able to pass it down the supply chain due to contract clauses as I have seen. It makes a mockery of what I understand the legislation states in that if there are Tax/NICs due, it is the client that should ultimately be able to pay them.

For me, what you are saying that HMRC has advised clients/agencies is actually nothing short of scandalous. For the clients it really is a case of heads they win, tails the contractor loses. If you have evidence of this, please can you PM me as it is something I would provide to my local MP the next time I see him yet again about the off-payroll rules and IR35 as I believe this is completely contrary to the intention of the legislation.

I think if that is exactly the advice that HMRC is giving then we all need to be writing to our MPs to raise this issue (mine will ignore me like usual but I'd still do it).

[eek]

I think if that is exactly the advice that HMRC is giving then we all need to be writing to our MPs to raise this issue (mine will ignore me like usual but I'd still do it).

On what grounds - I can't see the issue here - as the one thing everyone agreed regarding the 2017 rules was that any determination before work begins and you know the real working conditions is deemed to be unfair).

[ladymuck]

On what grounds - I can't see the issue here - as the one thing everyone agreed regarding the 2017 rules was that any determination before work begins and you know the real working conditions is deemed to be unfair).

It feels like an unintended consequence, or I've massively misunderstood (which, as we know, is my most common theme). In my very simple mind, there cannot be any passing down the chain the liabilty for an incorrect determination by the client. If they say outside and HMRC say inside then the client should pay up.

[ShandyDrinker]

On what grounds - I can't see the issue here - as the one thing everyone agreed regarding the 2017 rules was that any determination before work begins and you know the real working conditions is deemed to be unfair).

How can you say on what grounds?

Client has determined status in conjunction with contractor and issued an SDS. Contract is outside, contractor is paid gross. HMRC investigates and determines incorrect status given and issues penalties for Tax/NICs (or whatever happens), client pays penalties due to incorrect determination.

That should be it, end of story.

Yes, I know there are nuances in which the penalties move along the chain, but in the event that the client is still solvent, it should be their responsibility.