Be careful if you take Outside IR35 contracts

[eek]

Accessible here as the above method wasn't playing ball for me today
https://elitenews.uk/freelance-tax-r...or-the-unwary/

It feels like a very flimsy bit of reporting. It doesn't really spell out the dangers of pushing vulnerable people towards umbrella companies and it also doesn't really touch on the wider issues caused by the legislation. I have to say, I expected something more in depth from the FT. Maybe JB and eek should write something based on their knowledge

It’s not helped by people like IPSE who don’t seem to under stand that the problem with employer NI has little to nothing to do umbrella firms and everything to do with agencies wishing to maximise the fee in the advert.

[trashy]

This is a great thread. I found these clauses when reviewing the draft outside IR35 contract supplied to me today:

In the event that [agency] is involved in any legal proceedings as a result of this Agreement, the Contractor will co-operate to the fullest extent especially with the provision of any relevant documents or materials and that access to any relevant witnesses shall not be impeded. The Contractor shall join with [agency] in any legal proceedings and indemnify them accordingly.

The Contractor warrants that it will not at any time:
Supply its services through a Managed Service Company within the meaning of s.61B Income Tax (Earnings and Pensions) Act 2003 and shall indemnify [agency] for non-compliance with the relevant legislation;

The Contractor shall and shall ensure that the Consultant shall be responsible for and keep [agency] and the Client indemnified against any liabilities, fines, penalties or interest:
12.4.1 arising from all tax and national insurance contributions and any other taxes or deductions payable in respect of the Services provided under this Agreement; and
12.4.2 in respect of any claim made under any employment related legislation by the Consultant or an individual providing the Services, this clause specifically includes but is not limited to a claim made under the Agency Workers Regulations 2010
12.4.3 for the avoidance of doubt, the Consultant shall be personally liable under clause 12.4 and the Contractor shall ensure that the Consultant gives a personal guarantee in favour of [agency] or in any case shall ensure that [agency] can recover any dues from the Consultant personally, which maybe by way of set-off in Clause 3.5 or direct action against the Consultant.

The contract also had this little beauty:

[agency] reserves the right to vary the terms of this agreement by incorporating an addendum of obligations imposed by the Client in the event that the Client contract is received after this agreement has been signed.

*********************************

With these sort of clauses, what's stopping clients simply "determining" that the contract is outside IR35 thus paying lower rates than if the contract was inside IR35? Neither the client nor the agency would seem to be liable if the determination proves to be wrong.

[jamesbrown]

With these sort of clauses, what's stopping clients simply "determining" that the contract is outside IR35 thus paying lower rates than if the contract was inside IR35? Neither the client nor the agency would seem to be liable if the determination proves to be wrong.

Well, the Fee Payer (the agency in your case) is liable in the first instance, assuming the client provided a timely SDS with reasonable care; contractual liability clauses come later and work insofar as liability can be established and the liable party can pay, in principle. Of course, if you're on long payment terms, they may withhold payments. Anyway, you have the right idea, signing a contract with these sort of indemnity clauses is a bad idea™ (and always has been - they are not a particularly new thing), even if they ultimately prove ineffective.

[trashy]

Well, the Fee Payer (the agency in your case) is liable in the first instance, assuming the client provided a timely SDS with reasonable care; contractual liability clauses come later and work insofar as liability can be established and the liable party can pay, in principle. Of course, if you're on long payment terms, they may withhold payments. Anyway, you have the right idea, signing a contract with these sort of indemnity clauses is a bad idea™ (and always has been - they are not a particularly new thing), even if they ultimately prove ineffective.

Many thanks, could you possibly expand on "even if they ultimately prove ineffective" please?

[eek]

Many thanks, could you possibly expand on "even if they ultimately prove ineffective" please?

When push comes to shove after you refuse to pay they take you to court and they lose...

The problem is that going to court is likely to be very costly...

[eek]

Thinking about it - many years ago Accountants used to recommend closing and restarting your company every x years to avoid IR35 risks.

I'm tempted to suggest it may be worthing doing similar if you sign contracts with clawback / indemnification clauses...

[Fred Bloggs]

Many thanks, could you possibly expand on "even if they ultimately prove ineffective" please?

If I may take the liberty of answering this? Some of us believe that putting in contract clauses such as quoted above which seek to override the intention of parliament and UK statute cannot be enforced. Some of us here think that in the event of such clauses being tested in court, they will be deemed unenforceable. There are also laws relating to unfair contract terms between companies. Some of us believe such draconian clauses would be deemed unfair and unenforceable. But none of that has been tested in any UK court as far as contractors are concerned.

Though I believe that to be the case, I wouldn't want to be the person testing it in court. I now think at this point in my life, it's very doubtful I will work again. I am therfore one of the half million or so workers missing from the UK workforce. As has been high profile in the media of late.

[Fred Bloggs]

Thinking about it - many years ago Accountants used to recommend closing and restarting your company every x years to avoid IR35 risks.

I'm tempted to suggest it may be worthing doing similar if you sign contracts with clawback / indemnification clauses...

Some people have actually quietly been doing that for UK work for a while now. Take a job, form a company, do the job, dissolve the company.

[Cryton]

Hi all,
I chanced upon this thread and was immediately dismayed at this turn of events. Having spent the last few years worrying about the new IR35 legislation I thought I could finally put IR35 behind me. My client has given me an SDS of Outside IR35 and I was so relieved that any fall back now rests with the client / fee-payer.
I didn't even consider that there would be anything to worry about in my new contract. Low and behold I too have an indemnity clause in the contract.
It's my own fault for not having it checked - I used to be quite diligent with this previously but decided that now the client determines IR35 status that I didn't need to worry.
It appears that now I'm in an even worse position than before the legislation changed - still on the hook for a disagreement with HMRC on IR35 status and can't even insure against it.
Has anyone successfully challenged their agency to have this clause removed?
Now I'm aware of this I won't be happy signing future contracts with such a clause however I suspect that it will be a case of 'take it or leave it', or minimise risk and take inside IR35 with an umbrella.
C.

[Fred Bloggs]

Hi all,
I chanced upon this thread and was immediately dismayed at this turn of events. Having spent the last few years worrying about the new IR35 legislation I thought I could finally put IR35 behind me. My client has given me an SDS of Outside IR35 and I was so relieved that any fall back now rests with the client / fee-payer.
I didn't even consider that there would be anything to worry about in my new contract. Low and behold I too have an indemnity clause in the contract.
It's my own fault for not having it checked - I used to be quite diligent with this previously but decided that now the client determines IR35 status that I didn't need to worry.
It appears that now I'm in an even worse position than before the legislation changed - still on the hook for a disagreement with HMRC on IR35 status and can't even insure against it.
Has anyone successfully challenged their agency to have this clause removed?
Now I'm aware of this I won't be happy signing future contracts with such a clause however I suspect that it will be a case of 'take it or leave it', or minimise risk and take inside IR35 with an umbrella.
C.

I think you already have the answer, right there.