IR35 Liability transfer

[GoForIT]

Aside from being genuinely outside IR35 what strategy can you adopt to mitigate the indemnity? If a ltd co 1 man works via an intermediary for a large end client and has an indemnity clause re taxes etc that is quite open. Is one option here to close the company each few years so there is no company for the intermediary to claim from? Thinking especially when working for a few years at the same client

[jamesbrown]

Potentially, at the point the contract ends or shortly thereafter and before any dispute begins, of course. It depends what the indemnity says, but it’s unlikely to reference you personally. Anyway, the risk of enforcement is not so much years down the line, but when there’s an outstanding invoice or two and the client decides to reclassify status under pressure and withhold any outstanding money. Don’t forget, these clauses are quite likely not to hold under litigation, but it’s very easy to withhold outstanding invoices and then stonewall.

[northernladuk]

Aside from being genuinely outside IR35 what strategy can you adopt to mitigate the indemnity? If a ltd co 1 man works via an intermediary for a large end client and has an indemnity clause re taxes etc that is quite open. Is one option here to close the company each few years so there is no company for the intermediary to claim from? Thinking especially when working for a few years at the same client

Closing the company won't work. You are more likely to attract attention doing that. Used to be a thing years ago but not now. HMRC have powers to open cases up to 2 years after the closure so no safety and added risk so forget that one.

Best mitigation in a contract for a number of years is your own diligence. The client is likely to start viewing you as part and parcel and you will usually get very lax in your activities with the client. You can't polish a turd so if D&C, part and parcel and so on is now evident at your cient no amount of dicking around with the company will mitigate the fact you are now inside. If you want to be safe then sack the gig when it's apparent your IR35 status is in jeopardy and move on.

[GoForIT]

Thanks - the point is stopping the intermediary chasing the Ltd Co should there be any cause for them to try and invoke an indemnity clause. Not to try and avoid HMRC claiming.

[jamesbrown]

Closing the company won't work. You are more likely to attract attention doing that. Used to be a thing years ago but not now. HMRC have powers to open cases up to 2 years after the closure so no safety and added risk so forget that one.

Best mitigation in a contract for a number of years is your own diligence. The client is likely to start viewing you as part and parcel and you will usually get very lax in your activities with the client. You can't polish a turd so if D&C, part and parcel and so on is now evident at your cient no amount of dicking around with the company will mitigate the fact you are now inside. If you want to be safe then sack the gig when it's apparent your IR35 status is in jeopardy and move on.

Eh? The poster isn't talking about closing a company under investigation by HMRC. There is no difference between their scenario and closing a company under any other, ordinary circumstances. Sure, it requires HMRC approval, as usual. In any case, they are (implicitly) talking about a Chapter 10 gig, so any liability would need to be pursued via contractual terms, no direct involvement by HMRC.

[agentzero]

(snip)The government finally seem to achieved what they have been trying for over 20 years. And as a result the entire economy has suffered reduced tax take.

This is untrue. Tax the last couple of years has hovered around being record highs and evasion is, apparently, down too. I agree with you in principle regarding encouraging smart people to go abroad, but tax take is very high right now.

[Keanu2020]

Have been thinking a bit about this too. My company competitively bid and won some work directly with end client. Have since won more contracts there, some competed, some not as extension to current deliverables where things have over run. I even exercised right to sub on two contracts due to an operation as well.

But, all the contracts have a clear clause that seeks to pass any tax liabilities back to my company. In fairness, the client has this clause in all its contracts. But it is so opened ended and blankets all tax issues. Read with an inside / outside lens, could be applied to that.

I worry 12 months after engagement finishes, HMRC do spot check on all contract there, mine are deemed to be inside (very few companies want to fight HMRC), I’m out of the blue issued a new P45 / P60 with new tax amounts and suddenly HMRC is chasing me personally, not my company, for tax.

I see the clauses in all contracts I look at now. I therefore see company risk and personal risk. I don’t see any way to protect my company or myself. I plan to leave UK, but can’t do that for a couple of years due to personal reasons.

[jamesbrown]

Good article on CUK about this, I agree with it (and not the earlier article it's refuting):

https://www.contractoruk.com/news/00..._thinking.html

Take note.

[malvolio]

Good article on CUK about this, I agree with it (and not the earlier article it's refuting):

https://www.contractoruk.com/news/00..._thinking.html

Take note.

Beat me to it! Sobering reading....

[northernladuk]

Beat me to it! Sobering reading....

It is but isn't this the key point in the article.

The hirer admits that work was done outside the scope of the work contracted for, and that the contractor, in practice, had submitted to the control of the hirer’s project manager

Advice from day one of IR35 was deliver to contract and don't take any work on. Doing anything else and you'd fail the D&C element of the three pillars and be in trouble. Nothing has changed.

We've also said in threads that, despite the client making the determination, it's key the contractor keeps themselves outside. A point that a lot of new or permatractor type contractors will have either forgotten or didn't know in the first place.

So yes, liability can be transferred, but only if the contractor blows his/her/their own contract which kind of puts us back to where before clients made the determination surely?

Do your job properly and leave when IR35 becomes a problem and this isn't quite so sobering?