Client clause in SDS hold me liable for tax/ni or any penalty client faces from HMRC

[gazelle]

Hi,

Would welcome your thoughts on the following clause that has been added onto the SDS Inside IR35 determination that the client wants me to sign.

As I understand it, there is a requirement for the client to issue a SDS to the contractor - there is no requirement for the contractor to sign a SDS.

The client has added the following clause and wants me to sign it:

"Inside: As part of your contract with <<client>> you are obliged to have appropriate arrangements for administering TAX/PAYE/etc as an employed person and these will need to be approved by <<client>> . You are also responsible for and shall be liable to <<client>> for any income tax, National Insurance and social security contributions or payments that are not administered correctly in relation to your contract with <<client>> . You shall also be liable to <<client>> for all reasonable costs, expenses and any penalty or fine incurred by <<client>> in connection with any failure, either by you or any third party you have engaged to act on your behalf, to administer income tax, National Insurance and social security contributions or payments correctly"

The client has a list of approved Umbrella companies and I have gone with one of them - PayStream. The Tax/NI is all paid correctly.

The above clause seems quite draconian and wholly unfair. The whole point of Inside IR35 is it's put the onus on the end client to make sure Tax and NI is paid correctly.

I doubt I have much option but to sign it, but was wondering if it's fair to say, that this clause is wholly unreasonable and it should be between the end client and the agency and/or umbrella.

I don't have an employment contract directly with the client, my employment contract is with the Umbrella, so how can the client hold me responsible?
By signing this SDS and signing up to the clause - is that not in effect, putting a contract in place between the client and myself?

Would welcome your thoughts on this?

[northernladuk]

The above clause seems quite draconian and wholly unfair. The whole point of Inside IR35 is it's put the onus on the end client to make sure Tax and NI is paid correctly.

And that's exactly what they are doing by putting you through an umbrella. There are situations where you might pick an unscrupulous umbrella or have your inside money paid in to your LTD but they lose control of what you are doing in your LTD so they put clauses like this in. So they have an obligation to make sure you are paying the correct tax, they can only do this so far as there is a third party in between so they are covering themselves to make sure the arrangements between you and the payment vehicle are all above board. It's not draconian really, just making sure you do it right, which you are via a reputable umbrella so nothing to worry about.

I doubt I have much option but to sign it, but was wondering if it's fair to say, that this clause is wholly unreasonable and it should be between the end client and the agency and/or umbrella.

You could strike it out and send the signed contract back but there isn't a chance in hell the agent or client will remove clasues that cover their asses. As long as you via a reputable umbrella you've nothing to worry about so it's pretty toothless.

Highly likely everyone inside has the same clause.

[jamesbrown]

Not the end client per se, but the Fee Payer. Anyway, your understanding of the SDS is basically correct. It’s an end client responsibility, not an indemnity.

It wouldn’t create a contract, but it does purport to create an indemnity. It’s nonsense, though. Any such clause should be in the contract between the client and umbrella. Personally, I wouldn’t sign it, but hey ho.

[gazelle]

And that's exactly what they are doing by putting you through an umbrella. There are situations where you might pick an unscrupulous umbrella or have your inside money paid in to your LTD but they lose control of what you are doing in your LTD so they put clauses like this in. So they have an obligation to make sure you are paying the correct tax, they can only do this so far as there is a third party in between so they are covering themselves to make sure the arrangements between you and the payment vehicle are all above board. It's not draconian really, just making sure you do it right, which you are via a reputable umbrella so nothing to worry about.

You could strike it out and send the signed contract back but there isn't a chance in hell the agent or client will remove clasues that cover their asses. As long as you via a reputable umbrella you've nothing to worry about so it's pretty toothless.

Highly likely everyone inside has the same clause.

I could understand it if I was being paid via my own company (I should check if this is an option), but was given a list of approved Umbrellas which the end client has approved.

I suspect you are right, I'm just a small cog, if I make too much noise they will dispense and get someone else, but shouldn't have to be this way. Don't think I'm being too unreasonable.

Good point regarding crossing that part out and send it back. Or was thinking of sending it back saying "signed under protest"

Not the end client per se, but the Fee Payer. Anyway, your understanding of the SDS is basically correct. It’s an end client responsibility, not an indemnity.

It wouldn’t create a contract, but it does purport to create an indemnity. It’s nonsense, though. Any such clause should be in the contract between the client and umbrella. Personally, I wouldn’t sign it, but hey ho.

I like that "end client responsibility, not an indemnity".
So it's pretty toothless as a clause - wouldn't stand up in a court, hopefully.

Given that the tax is being paid correctly, I won't rock the boat too much - just cause a little ripple see what happens.

[WTFH]

Or was thinking of sending it back saying "signed under protest"

... I won't rock the boat too much - just cause a little ripple see what happens.

Apart from some personal ego trip, what positive outcome are you hoping to achieve as a professional business person by doing this?

[northernladuk]

I could understand it if I was being paid via my own company (I should check if this is an option), but was given a list of approved Umbrellas which the end client has approved.

It's likely a general one size fits all contract that's been created by a bunch of lawyers and then rolled out. They don't tailor contracts to contractors.

I suspect you are right, I'm just a small cog, if I make too much noise they will dispense and get someone else, but shouldn't have to be this way. Don't think I'm being too unreasonable.

You are hence the one size fits all contract. I think you are making a mountain out of a molehill though. Most inside contracts will probably have this and look how many people are inside. As long as you have covered yourself with a suitable umbrella there is absolutely nothing to worry about so why make a scene of it? It's unfair? Life is unfair.

Good point regarding crossing that part out and send it back. Or was thinking of sending it back saying "signed under protest"

To achieve what? look like a dick before you've even started?

I like that "end client responsibility, not an indemnity".
So it's pretty toothless as a clause - wouldn't stand up in a court, hopefully.

It will if you don't have your tax affairs in order. If you are offered a brolly and decide to go deemed payments to the LTD and don't pay your tax then I'm pretty sure it will. The client has done what they can to protect themselves, you didn't honour your responsibilities so can't see why that clause wouldn't kick in and stand. But it won't because you are through a reputable umbrella so I don't see why you are worrying.

Given that the tax is being paid correctly, I won't rock the boat too much - just cause a little ripple see what happens.

Again, to what end? IMO you'd be better spending your time pestering the client about why they've gone inside. If the work is truly disguised employee then fine but if there is a chance you could argue outside and they've just folded and gone no PSC's then educating the client carefully and overtime would be a better use of your time. Pretty sure it won't change anything in your time but it's something I think most of us should do bit by bit and carefully to try change client opinions.

[northernladuk]

Oh and thinking about it I'd have spent a lot more effort complaining to the agent about their PSL of brollies. I assume you've been given the big 4, none of which you really want to be with so give them a hard time about wanting your own brolly. Push it as far as you can and then sign. Client isn't involved and agent won't bin you on this point alone so you can push it pretty hard. Push the one you want, get that brolly to contact them direct as well. Agents only pick the big 4 for kick backs so put pressure on them to do the right thing and offer a better choice or your choice.

[gazelle]

Apart from some personal ego trip, what positive outcome are you hoping to achieve as a professional business person by doing this?

Right, so if the clause said at your manager's discretion, you are to promptly drop your trousers and bend over, your mentality is such that to object is an "ego trip"!
The state of some people, since when did standing up for yourself and having some self-respect become an "ego trip!"

It's likely a general one size fits all contract that's been created by a bunch of lawyers and then rolled out. They don't tailor contracts to contractors.

You are hence the one size fits all contract. I think you are making a mountain out of a molehill though. Most inside contracts will probably have this and look how many people are inside. As long as you have covered yourself with a suitable umbrella there is absolutely nothing to worry about so why make a scene of it? It's unfair? Life is unfair.

To achieve what? look like a dick before you've even started?

I gather it's a belt and braces approach as it's a relatively new era with HMRC holding companies liable and companies want to protect themselves. However, this is the first I've come across it, I've had 2 other inside contracts prior to this which never had such a clause and nor did I have to sign anything. Have you seen this on your SDS on any of your inside contracts?

I don't think there is anything wrong in raising it as a concern, if I didn't, then they wouldn't know that they have contractors concerned with this clause and possibly look to amend/remove and place it in an appropriate place. In my younger days, I would've just rolled over and accepted it, as I'm quite a lot older now, I guess you don't just roll over and you start standing up for yourself and have some self-respect.

This is the 3rd 6month contract, so I'm not new here and I've earned some standing in the company during my time here. At the beginning they never issued a SDS. At the 2nd renewal is when they issued their first SDS and that's when I first saw the clause, I raised it back then. Now this is the 3rd renewal and it's still in there, when I saw it, it just vexxed me again.

This is a small financial company with like 1 person in the legal dept.

It will if you don't have your tax affairs in order. If you are offered a brolly and decide to go deemed payments to the LTD and don't pay your tax then I'm pretty sure it will. The client has done what they can to protect themselves, you didn't honour your responsibilities so can't see why that clause wouldn't kick in and stand. But it won't because you are through a reputable umbrella so I don't see why you are worrying.

Again, to what end? IMO you'd be better spending your time pestering the client about why they've gone inside. If the work is truly disguised employee then fine but if there is a chance you could argue outside and they've just folded and gone no PSC's then educating the client carefully and overtime would be a better use of your time. Pretty sure it won't change anything in your time but it's something I think most of us should do bit by bit and carefully to try change client opinions.

Right, the company is so scared that they've sought to add this clause for maximum protection, you think there is a cat in hell's chance they would look at taking the risk of going down the outside route.

Oh and thinking about it I'd have spent a lot more effort complaining to the agent about their PSL of brollies. I assume you've been given the big 4, none of which you really want to be with so give them a hard time about wanting your own brolly. Push it as far as you can and then sign. Client isn't involved and agent won't bin you on this point alone so you can push it pretty hard. Push the one you want, get that brolly to contact them direct as well. Agents only pick the big 4 for kick backs so put pressure on them to do the right thing and offer a better choice or your choice.

why? there all pretty much the same as long as the offer what you need, then why risk going with someone else.

[northernladuk]

Right, so if the clause said at your manager's discretion, you are to promptly drop your trousers and bend over, your mentality is such that to object is an "ego trip"!
The state of some people, since when did standing up for yourself and having some self-respect become an "ego trip!"

Only perms have managers, you could argue inside IR35'ers have 'managers' but not really as they are still contractors under a perm tax setup. Legal clauses in contracts are nothing to do with managers either. They are there to protect the client. WTFH's point is, and I agree with him, that it's utter pointless putting this in as it will do absolutely zero good but can make you look like trouble. So why do it. You might be annoyed and you might want to put it in but think professionally and you will realise it's a bad idea.
It's not really standing up for yourself either. It's business. You are right to push back where push back will make a difference. Doing this won't.

I gather it's a belt and braces approach as it's a relatively new era with HMRC holding companies liable and companies want to protect themselves. However, this is the first I've come across it, I've had 2 other inside contracts prior to this which never had such a clause and nor did I have to sign anything. Have you seen this on your SDS on any of your inside contracts?

It's not that new I don't think. IR35 changed hit the Public Sector back in 2017 and that's just the changes. IR35 has been around since 2000 including inside and I believe (but I could be wrong) passing tax back to a company if someone they pay doesn't pay the proper tax has been around many decades. It's one reason why no company will take on self employed.

I don't think there is anything wrong in raising it as a concern, if I didn't, then they wouldn't know that they have contractors concerned with this clause and possibly look to amend/remove and place it in an appropriate place. In my younger days, I would've just rolled over and accepted it, as I'm quite a lot older now, I guess you don't just roll over and you start standing up for yourself and have some self-respect.

I'd agree so put a note to them about it or strike it out. Putting 'signed under protest' doesn't help. But sure, take them to task about it, but properly. Just remember client/supplier relationships are not equal. they have the money and you want it so sometimes they'll try twist the knife. Generally they don't but if the fight is over a pretty irrelevant clause, that if you do things properly will never come to anything then getting on with it might be the best way.

This is the 3rd 6month contract, so I'm not new here and I've earned some standing in the company during my time here. At the beginning they never issued a SDS. At the 2nd renewal is when they issued their first SDS and that's when I first saw the clause, I raised it back then. Now this is the 3rd renewal and it's still in there, when I saw it, it just vexxed me again.

Interesting they didn't provide and SDS to start with. They have either been negligent by not doing it or they had a ban on PSC's so they didn't need to. If it is the latter then they've changed direction and have started assessing contracts with the chance some might be outside which is a good step forward. I wonder if you leave the next person could come in as outside. You are stuck inside because you were inside in a PSC ban so default inside. They didn't want to risk inside to outside.

This is a small financial company with like 1 person in the legal dept.

Which could explain the crap clause and the fact they aren't willing to remove it because they don't have the resources to re-assess the risk without it.

Right, the company is so scared that they've sought to add this clause for maximum protection, you think there is a cat in hell's chance they would look at taking the risk of going down the outside route.

Well if they've gone from a PSC to SDS they might. But sadly many companies just don't want the hassle and blanket inside everyone (which I believe is illegal) so maybe they've learnt and have stepped up. Dunno. But if it's one person in the legal company who knows. It's been a mess for clients as well as contractors.

why? there all pretty much the same as long as the offer what you need, then why risk going with someone else.

As time goes on you are just proving how little you know. Turn it around. Why go with one you've been pushed you don't know about when you could go with one you trust?
They are not all the same. There is the difference between the legitimate umbrellas and the offshore schemes and then there is the issue with a number of large umbrellas pocketing holiday pay. There is then some that are just crap to deal with in general.
Here is an article on the holiday pay issue but plenty more resources to research. There were clients still pushing the umbrellas that were outted for pocketing holiday pay. It's like any industry, there are good ones and bad ones. Many clients with a standard set of about four brollies push them becuase they get kickbacks from the brolly. I'd take one that's proven to be quality over one that's on a list because it has the biggest kickbacks all day.

[hobnob]

Right, so if the clause said at your manager's discretion, you are to promptly drop your trousers and bend over, your mentality is such that to object is an "ego trip"!

If I saw a contract with that clause, I wouldn't sign it.

In a wider sense, "signing" and "not signing" are both legitimate options. However, "signing under protest" seems a bit pointless. It wouldn't surprise me if they sent the contract back and said "we can't accept this", i.e. you either sign it normally or don't sign it at all.

To answer your other question, I've never had to sign an SDS for an inside contract, so I don't think it's standard practice.