Be careful if you take Outside IR35 contracts

[northernladuk]

Two points to add from me.

Firstly, the SDS can be issued any time up to the first payment as per this article. We have already had a handful of contractors start with the promise of an outside gig but no SDS. When it finally arrived a month in to the gig it's come back inside. Although the process allows it, do everything in your power to get your SDS BEFORE you start so there are no nasty surprises later on.

https://www.gov.uk/hmrc-internal-man...anual/esm10012

For the client, or any subsequent party in the chain, to discharge its liability the SDS should be issued on or before the date any payment is made. If payments are made before the SDS is issued, this will result in responsibility for tax, NICs and apprenticeship levy remaining with the person who hasn’t passed the SDS on.

Also here

https://www.lewissilkin.com/en/insig...rom-april-2021

The end-user must provide the SDS to the contractor before making the first payment to them. If there is an agency in the chain (see below), the SDS must also be provided to the agency. In practice, we expect that contractors accepting a new assignment are likely to want to know in advance whether they will be assessed as within the scope of IR35.

Also be aware it's quite possible the client may breach their payment terms and delay in paying you which means an even longer delay before you get the bad news.

Second point is the small company exemption. Small companies are likely to be an IR35 nightmare as they aren't big enough to be well structured enough to offer a proper SoW piece of work with no D&C and will allow substitution. They will often want all hands to the deck and expect everyone to muck in. There is also the possibility that this exemption may disappear in future IR35 reforms. In the worst case you could be caught in an outside gig that has no chance of standing up to any scrutiny that then may move inside and open you up to the possibility of retrospective action. Be extra diligent when assessing your own IR35 status. A pretty unsafe are to be in with the potential threat for that area to come under the microscope in the not too distance future.

[eek]

There's several barriers that are extremely easy to erect to prevent either of those happening.

So post them - because I tore your previous ones apart...

[Fred Bloggs]

Seems very clear to me. No SDS = no work. Easy to say it, but unless you dig your heels in you are likely to trampled on whether it's SDS or any one of a million things.

[Fred Bloggs]

So post them - because I tore your previous ones apart...

Don't flatter yourself eek. If you don't want to stay civil then keep your thoughts to yourself. You have done nothing of the sorts, I haven't even posted them. That's my final engagement with you on this topic.

[eek]

Don't flatter yourself eek. If you don't want to stay civil then keep your thoughts to yourself. You have done nothing of the sorts. That's my final engagement with you on this topic.

My point was that you are saying there are easy fixes and then not posting them

Not starting without an SDS isn't a fix it's a starting point.

But we aren't talking about when you start a contract we are talking about x months / years later when HMRC asks the end client and the end client goes, oops the contract was inside, best get the agency to pay the tax bill.

No SDS determination on Day 1 fixes that for you regardless of how much you think / hopes it does.

Likewise your idea that you can walk away after 2 weeks when you are first paid because you were under the inaccurate impression that the final SDS determination needs to be given prior to the first payment by the agency rather than the first payment by the end client.

[Fred Bloggs]

My point was that you are saying there are easy fixes and then not posting them

Not starting without an SDS isn't a fix it's a starting point.

And we aren't talking about when you start a contract we are talking about x months / years later when HMRC asks the end client and the end client goes, oops the contract was inside, best get the agency to pay the tax bill.

No SDS determination on Day 1 fixes that for you regardless of how much you think / hopes it does.

Likewise your idea that you can walk away after 2 weeks when you are first paid because you were under the inaccurate impression that the final SDS determination needs to be given prior to the first payment by the agency rather than the first payment by the end client.

Look eek, nobody is saying you don't do good work.

I already said I am no longer engaging with you on this topic and I mean it.

I haven't begun to post what I think are sensible barriers to the stuff you are talking about. It's probably for the best that I don't. Because at the moment, despite all the effort you put in you apparently have to resort to almost hysteria to try defend what you are saying. Most of which is extremely hypothetical at the present time with no firm solution. I will be very well prepared if I choose to take on a Chapter 10 outside contract. Now that really is my last engagement with you on this topic.

[eek]

Look eek, nobody is saying you don't do good work.

I already said I am no longer engaging with you on this topic and I mean it.

I haven't begun to post what I think are sensible barriers to the stuff you are talking about. It's probably for the best that I don't. Because at the moment, despite all the effort you put in you apparently have to resort to almost hysteria to try defend what you are saying. Most of which is extremely hypothetical at the present time with no firm solution. I will be very well prepared if I choose to take on a Chapter 10 outside contract.Now that really is my last engagement with you on this topic.

But the entire point is the issue isn't hypothetical because we have already seen it happen once (albeit under the public sector rules). In what way is Keanu2020's situation hypothetical?

[jamesbrown]

All the OP is doing is flagging the issue. It isn't providing recommendations or pretending that anyone knows how this will play out, probably in several years time. There are many unknowns, including how the transfer of debt would work when a PSC has long since closed or how the transfer of debt would work when there is no claw-black clause in the contract and/or no personal liability created. It is also unknown how rapidly, or in what direction, the situation would evolve when faced with the publicity or interest from MPs surrounding an egregious case where, for example, the Fee Payer had attempted to create a new PAYE debt on an individual who was not party to the original contract. There are many unknowns.

At the same time, it is absolutely right to flag this risk. There will be many contractors out there who are completely ignorant of these risks and assume that the risk is purely on the supply chain above them in a Chapter 10 scenario that is re-assessed later, as was broadly intended/advertised by the legislation (absent fraud), but not sufficiently tied down and/or not interpreted in the same way by HMRC.

As I have noted elsewhere, I am personally avoiding Chapter 10 outside contracts. YMMV. If you accept them, make sure you have an SDS before you start work and make sure the contract words and working practices are very clearly outside and further make sure that there are no claw-back clauses in the contract.

This forum is really only here to inform ourselves and our fellow contractors. We are all big boys and girls and can make our own decisions.

[cojak]

Yep, If you just go 'meh' and scroll down that's fine by me.

[ShandyDrinker]

I've got a proper SDS from the QDOS assessment I did, but I think people (as ever, on here) are being totally paranoid about this.

Some seem to think that HMRC have extensive knowledge of contractors' accounts, and their sophisticated systems will be harvesting teraflops worth of data trying to catch one-man band IT geeks out.

When the public sector reforms came in in April 2021, many on here were almost rubbing their hands in glee at the 1000s upon 1000s of permietractors rolling over and going Inside doing the exact same role as HMRC would no doubt come knocking. This hasn't happened, people are still in these roles, and many have closed their companies which is surely the biggest sign of disguised employment going?!

Truth is, chances of anyone being affected by this new guidance is slim to none.

Obviously, I know it does happen but I think people need to calm down and stop using this as yet another way in which HMRC are out to get poor old contractors

You are nowhere near cynical enough about this but in the end it'll be your downfall if you haven't taken a suitable position, such as ensuring any clawback clauses are removed.

So when the smugerati contractors who think that because a shiny suited recruitment agent or QDOS, in whose best interests it is to tell you the contract is outside via their SDS process, let's see how good these SDSs are when HMRC comes knocking to a large private sector client and says soz, but all your contractors are inside. You think you're in a great position but then the agency demands the tax/NICs back because of your contract clauses. Nice move.

Look eek, nobody is saying you don't do good work.

I already said I am no longer engaging with you on this topic and I mean it.

I haven't begun to post what I think are sensible barriers to the stuff you are talking about. It's probably for the best that I don't. Because at the moment, despite all the effort you put in you apparently have to resort to almost hysteria to try defend what you are saying. Most of which is extremely hypothetical at the present time with no firm solution. I will be very well prepared if I choose to take on a Chapter 10 outside contract. Now that really is my last engagement with you on this topic.

Sorry, but I'm with eek on this. If you have mitigating strategies then by all means share them and educate the people obviously less well informed than your are.

What eek has said and per my own recent position I completely agree with eek's stance. If you take a contract, even with a shiny outside SDS to back it up, if there are clawback or liability transfer clauses in the contract, then you can be stung because a client bricks it as stated above.

The only way I can currently see to mitigate any risk is by a combination of an outside SDS and removal of any clawback clauses. It may also make sense to not leave huge amounts of cash in the company.