Employers and IR35

[ecc83]

Are there any implications for an employer/client if a contract is at some point in the future deemed to be inside IR35? My understanding is that any additional tax/NI obligations fall squarely upon the contractor. Is that right?

Reason I ask is that I've got the following clause in a contract:

"The Contractor shall indemnify the Client against any claims for tax and national insurance and any related penalties and interest made against the Client by HMRC in respect of the consultancy services provided by the Contractor during this agreement."

Have there been any cases where the end client has been deemed liable for additional tax/NI? What's this clause doing there?

[jamesbrown]

Are there any implications for an employer/client if a contract is at some point in the future deemed to be inside IR35? My understanding is that any additional tax/NI obligations fall squarely upon the contractor. Is that right?

Reason I ask is that I've got the following clause in a contract:

"The Contractor shall indemnify the Client against any claims for tax and national insurance and any related penalties and interest made against the Client by HMRC in respect of the consultancy services provided by the Contractor during this agreement."

Have there been any cases where the end client has been deemed liable for additional tax/NI? What's this clause doing there?

No. Indeed, if there were, that would go some way to killing it dead, because there would be some incentive for the client to also ensure that the B2B relationship was strictly that. If you were found to be inside, you and your employer (i.e. your company), would be deemed liable for any tax due, not the client. While you are deemed "employed" by your client for the purposes of IR35, your company is your employer and that's where the liability rests, together with any personal liability. From what I gather, these clauses are increasingly common though (concerned lawyers). Are you working in the public sector?

[ecc83]

Are you working in the public sector?

Nope. So I assume this clause was added in light of recent public sector shenanigans.

[cojak]

I would get your contract reviewed by Bauer & Cottrell or QDOS and get them to tell the agency to remove that clause pronto*.

My guess is that they will be very little persuasion since we've never seen that in a private sector contract and the agency is just pushing it.

And you can tell the agency that a proper business contract and working practices will NOT need indemnifying.

(*If that's in there what other horrors are lurking in the small print?? I bet the rest of the contract is absolute rubbish!)

[centurian]

I have seen such clauses before. Basically in laymans terms it means if HMRC do target the end client for whatever reason, then they can come after you to compensate them, although without seeing the contract in full, it isn't clear whether they come after you personally, or your LtdCo.

[LisaContractorUmbrella]

I believe there is a debt transfer provision within the MSC legislation so it could be a throw back to that and I think there is something within the AWR as well

[VectraMan]

I've had that clause (and signed it). I don't see the problem: if there's no liability of the client for your tax and NI, then there's no way it would come into effect. It's just the sort of thing that HR numpties come up with because they don't understand the situation.

[Jessica@WhiteFieldTax]

It's a fairly simple commercial protection, and it will be seen in many contracts, in differing forms, that have been drafted commercially - I've seen it in similar form in a service contract between a hospital and a university for nurse training, and more or less every sub contracting agreement at small business level.

Sometimes it's easy to get wrapped up in IR35 aspects of a contract, and forget the straightforward commercial aspects.

Real question, I guess, is is this a risk you are happy with? Answer, probably yes, as its how risk commercially tends to get divvied up. If you engage a builder and he brings staff / subbies with him, if he then gets stung for tax on his subbies you wouldn't expect him to come knocking on your door...

[moggy]

If the client was deemed the host employer, then I can't see why there couldn't be come backs on them. Although it seems the govt hasn't tended to go that route as yet.

In fairness its what I have always thought would be the best strategy with regards to off-shore umbrellas to help the govt fight that model rather than chasing their tails and being out done by highly paid accountants.

[malvolio]

If the client was deemed the host employer, then I can't see why there couldn't be come backs on them. Although it seems the govt hasn't tended to go that route as yet.

In fairness its what I have always thought would be the best strategy with regards to off-shore umbrellas to help the govt fight that model rather than chasing their tails and being out done by highly paid accountants.

IR35 is judged using employement criteria. It is not, however, a statement that you actually are an employee; that's a whole other set of legislation. Don't mix up the two.