Be careful if you take Outside IR35 contracts

[Grah]

I have been given an SDS of outside IR35 for an upcoming contract and a draft contract. I just spoke to someone at QDOS about getting it reviewed but they said they wouldn't give any liability insurance or advice even, in particular on liability clauses for contractors with an outside IR35 contract, because they don't know how HMRC are going to behave with those in the future.

Some posters above have said to try and get the liability clause removed. Here are the two clauses that I think are relevant liability clauses but could someone confirm that? The first appears to be trying say that my Ltd will pay the correct tax and the second seems very similar. I am not asking for anybody's opinion of whether these are fair etc. I would just like to know whether these represent the 'liability clauses' that people had suggested one should try to get removed.

The Consultancy shall be responsible for all income tax liabilities and National Insurance or similar contributions in respect of and the Consultancy shall indemnify the Company in respect of any such payments required to be made by the Company and the Company shall be entitled to deduct the same from the expenses due to the Consultancy.

The Consultancy shall be responsible for the payment of all remuneration and any benefits due to or in respect of the Representative under his contract of employment or engagement with the Consultancy or otherwise, including any National Insurance, income tax and any other form of taxation or social security costs in respect of hisremuneration or benefits.


Thanks,
Graham

[jamesbrown]

The second clause is more innocuous, I think, but the first one is a (poorly drafted) indemnification and transfer of liability clause, yes.

[Grah]

Thanks jamesbrown.

[hobnob]

I contacted my MP about the recent changes:

The obvious solution would be to make the same organisation responsible for making the determination and paying any penalties, and to insist that the SDS is issued before the contract starts. Similarly, any contract terms which attempt to transfer this liability should be ignored. That gives the decision maker a strong incentive to get it right, and to stand up to HMRC during any subsequent investigations (rather than shrugging it off as "someone else's problem").

Realistically, I don't think there's much you can do about this in the short term. However, assuming that there will be another general election in the next 2 years, I would like to see this mentioned in the next Labour party manifesto. (It wasn't mentioned at all in the 2019 manifesto, i.e. the Labour party didn't have any official policy on this issue.) So, this might be a good time to start discussions with your colleagues, to decide what your position is going to be. Even if you disagree with me, I would still like your position to be clear, so that people know what they're voting for.

My MP contacted the DWP, who passed the letter to HMRC, and a reply came back from the Director of the Individuals Policy Directorate (on behalf of the Chief Executive). These parts were interesting:

hobnob raises concerns that where HMRC disputes a determination, the liability for any additional tax due may not fall with the organisation that made the incorrect determination. The legislation requires clients to take reasonable care when issuing a Status Determination Statement (SDS). If the client fails to take reasonable care, the responsibility for the deduction of tax and employee National Insurance Contributions (NICs), and the payment of employer NICs and the apprenticeship levy, if applicable, will rest with the client.

[..]

Please thank hobnob for telling us that he has seem some deemed employers putting 'claw back' conditions into the contracts they offer, which means the worker may be liable to the additional tax and NICs payments if the client provides an incorrect determination. We will account for this information as part of our research into how the contingent labour market is reacting to the off-payroll working rules reform. As part of this research, we are currently looking into the short-term impact of the 2021 reform and have recently concluded gathering input into the recent Call for Evidence into the umbrella company market.

Please also thank hobnob for his suggested changes to the off-payroll working rules. While we have no plans to make any changes to the rules related to issuing an SDS, we keep all tax policy under review.

(I've replaced my real name for anonymity and added emphasis.)

The first part of that reply implies that HMRC don't understand the distinction between the client and the fee-payer, i.e. they haven't considered what happens when a recruitment agency is part of the chain. I did spell that out in my original email:

If I was working directly with the client then they would also be the fee-payer. However, if I work via a recruitment agency then the agency is the fee-payer.

So, they either disagree with this interpretation or they skimmed over it.

[jamesbrown]

Well, TBF, you don't often get that level of engagement from HMRC, even if you engage via your MP, but it goes to show that your MP will sometimes help you get more info., even if they are not in the party of Gov't.

FWIW, I don't think they said anything wrong there. The condition for the liability being passed to the Fee Payer is a timely SDS completed with reasonable care. If there is no timely SDS or reasonable care is not taken, it rests with the client. Of course, if the timely SDS, completed with reasonable care, is subsequently found to be wrong (the contract found inside), then the Fee Payer is liable in the first instance, yes.

On your point about Labour, it is their stated policy (also in their last manifesto) to render equivalent the taxes associated with employment income and other income. That doesn't exactly render IR35 moot (e.g., moneyboxing), but it does change the landscape significantly, especially since they also propose to make CGT and income tax equivalent.

[jamesbrown]

Very long article in the FT today looking at the IR35 reforms and freelancer tax more generally:

https://www.ft.com/content/adb1742a-...f-674b3be37cda

For those without a subscription, use your favorite search engine, "Freelance tax reforms leave traps for the unwary" and click the link, which should provide access.

[eek]

And nothing there that surprises me at all.

heck I pointed out the impact the rules on umbrella expenses would have back in 2016.

[jamesbrown]

And nothing there that surprises me at all.

heck I pointed out the impact the rules on umbrella expenses would have back in 2016.

Right, no surprises to anyone in the know, but it's a pretty decent summary of the state of things (with commentary from a lot of the usual suspects).

[ladymuck]

Very long article in the FT today looking at the IR35 reforms and freelancer tax more generally:

https://www.ft.com/content/adb1742a-...f-674b3be37cda

For those without a subscription, use your favorite search engine, "Freelance tax reforms leave traps for the unwary" and click the link, which should provide access.

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

[jamesbrown]

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

Nice one. Yeah, it varies. Sometimes you need to go search engine shopping For example, if it doesn't work with Google, try Bing. They probably allow a certain number of forwards per search engine per IP address per month, something like that. Sometimes the link works through the "News" section when it doesn't work through "All results".