Is anyone using a contrived agency contract?

[GB9]

Sorry but I'm not sure I agree - Ready Mix is a starting point only - in HMRC v Larkstar the commissioners found that there was no control over how Mr Brill did his work yet HMRC won the case, albeit through appeal at the High Court

HMRC didn't win. The appeal found that the original verdict was not legally correct.

[LisaContractorUmbrella]

That's not my interpretation of that case. The working hours that he was required to do were used as a pointer towards control and there was also a MOO issue.

The case wasn't fought to the bitter end though so we don't know how it would have gone if it had.

You've still not shown any strong evidence of a lack of RoS being an automatic IR35 fail and if you're going to make such claims I feel you should back then up.

OK, Dragonfly - there was an ROS in the contract but the case failed because the Judge thought that it had been included purely to put the contractor outside of IR35.

However, I will concede that a lack of ROS would not automatically be an IR35 fail but it would be a very strong pointer towards employment - happy now

[TheCyclingProgrammer]

OK, Dragonfly - there was an ROS in the contract but the case failed because the Judge thought that it had been included purely to put the contractor outside of IR35.

There were many reasons why Dragonfly lost; lack of RoS in itself wasn't one of them, its just that it was discounted as an argument towards being outside of IR35 due to it being a sham clause (and the attempts to make ongoing contracts more "IR35 friendly" probably undermined the case too). All the more reason *not* to rely on RoS to put you outside of IR35 (HMRC themselves only consider an unexercised RoS to be a weak pointer towards self-employment).

However, I will concede that a lack of ROS would not automatically be an IR35 fail but it would be a very strong pointer towards employment - happy now

Don't agree with that either - if HMRC consider a ROS a weak pointer towards self-employment then how can a lack of one be strong pointer towards employment?

The only thing that can be said with some confidence regarding a good RoS clause is that HMRC consider it a weak pointer towards self-employment or if it has actually been used, a strong pointer towards self-employment. It's not possible to make any strong statement either way about the lack of a RoS clause - you have to consider everything else in the context of the contract, including control and MOO and other pointers.

[GB9]

OK, Dragonfly - there was an ROS in the contract but the case failed because the Judge thought that it had been included purely to put the contractor outside of IR35.

However, I will concede that a lack of ROS would not automatically be an IR35 fail but it would be a very strong pointer towards employment - happy now

Brings me back to the original point of the thread. I can't see a false ros being included in a contract after this legislation comes in.

[DirtyDog]

OK, Dragonfly - there was an ROS in the contract but the case failed because the Judge thought that it had been included purely to put the contractor outside of IR35.

However, I will concede that a lack of ROS would not automatically be an IR35 fail but it would be a very strong pointer towards employment - happy now

I thought Dragonfly failed because there was no valid RoS, coupled with there being MOO and D&C - so failed on all three counts.

[GB9]

I thought Dragonfly failed because there was no valid RoS, coupled with there being MOO and D&C - so failed on all three counts.

And HMRC need all 3.

[TheCyclingProgrammer]

Brings me back to the original point of the thread. I can't see a false ros being included in a contract after this legislation comes in.

There's a key difference though:

* With IR35, it us OurCos, as the supplier that are insisting on the RoS clause because it benefits us.
* With this scenario this new proposed legislation is targeting, the RoS clause benefits the agency as they are using it as evidence that their workers are self-employed and thus avoiding the responsibilities (and NI) of an employer.

There is a possibility of a knock-on effect (even if it's as a result of agencies misunderstanding the legislation and trying to apply it to Ltd. Co contractors when it doesn't apply) which the PCG are seeking clarification on but I'm not convinced this will affect us.

I believe this is the particular case that HMRC lost and is driving this new legislation:

ESM7315 - Case Law: The Commissioners For HMRC and Talentcore Limited (t/a) Team Spirits

Where this case is relevant to us is that the general tests for employment are the same in IR35 cases as they are in this case. In this particular case, HMRC were trying to argue that the requirement for personal service meant there was a contract of services. The agency based their argument on the grounds of a RoS clause *and* there not being sufficient direction and control. It seems that HMRC's loss in the case hinged on the unfettered RoS clause.

It will be interesting to see how this pans out but I don't think we should be worrying yet...

[LisaContractorUmbrella]

There were many reasons why Dragonfly lost; lack of RoS in itself wasn't one of them, its just that it was discounted as an argument towards being outside of IR35 due to it being a sham clause (and the attempts to make ongoing contracts more "IR35 friendly" probably undermined the case too). All the more reason *not* to rely on RoS to put you outside of IR35 (HMRC themselves only consider an unexercised RoS to be a weak pointer towards self-employment).



Don't agree with that either - if HMRC consider a ROS a weak pointer towards self-employment then how can a lack of one be strong pointer towards employment?

The only thing that can be said with some confidence regarding a good RoS clause is that HMRC consider it a weak pointer towards self-employment or if it has actually been used, a strong pointer towards self-employment. It's not possible to make any strong statement either way about the lack of a RoS clause - you have to consider everything else in the context of the contract, including control and MOO and other pointers.

The Substitution Argument
The Usetech/NES Terms and Conditions were part of a standard contract, which NES used when engaging individuals through one-man companies like Usetech. It contained a provision relating to substitution but this was not reflected in the ABB/NES contract

The Special Commissioner had said in his decision that ‘the “right” of substitution was largely illusory’. Park J. thought there was a prior question that ought to have been asked and that was whether there would have been any right of substitution at all in the notional contract between ABB and Mr Hood. He concluded that, in accordance with the facts found by the Special Commissioner, the hypothetical contract would not have contained a substitution provision. There was no substitution provision in the ABB/NES contract and there was no evidence to suggest that Usetech had even tried to have such a provision inserted in that contract. Additionally, the facts indicated that in reality ABB required Mr Hood’s services.

The judge went a stage further and said that even if Mr Hood had raised in negotiation with ABB the possibility of a substitution provision, he considered that ABB would not have agreed to it. Had Mr Hood been unable to provide his services and suggested a replacement, the evidence of Mr Hunter was that ABB would have given some weight to that suggestion. But he added:


“That, however, is a far cry from the direct contract between Mr Hood and ABB containing an express provision which conferred on him an entitlement to substitute someone else for himself, subject only to the substitute having the required skills.”
Counsel for the appellant had also argued that as Mr Hood only had access to the Usetech/NES contract, which contained a substitution clause, and was not aware that there was no corresponding clause in the ABB/NES contract, the hypothetical contract must have contained such a clause. He also said that this argument was reinforced by the self-assessment nature of the tax system. The judge rejected those arguments relying in part on the judgment of Burton J. in R (on the application of the PCG and others) v IRC [2001] STC 629 at p.651.

For all those reasons, the judge did not accept that the hypothetical contract would have contained a substitution clause.

He then went on to consider previous court decisions on substitution clauses at clauses 48 to 54 of his judgment and this provides a useful summary of this subject. Importantly he says at clause 53:


“The presence of a substitution clause is an indicium which points to self- employment, and if the clause is as far-reaching as the one in Tanton it may be determinative by itself.”

[DirtyDog]

“The presence of a substitution clause is an indicium which points to self- employment, and if the clause is as far-reaching as the one in Tanton it may be determinative by itself.”

Now all you need is a case where the judge said "The absence of a substitution clause is an indicium which points to employment, and regardless of mutuality of obligation and direction and control, means that you are a disguised employee"

[GB9]

The Substitution Argument
The Usetech/NES Terms and Conditions were part of a standard contract, which NES used when engaging individuals through one-man companies like Usetech. It contained a provision relating to substitution but this was not reflected in the ABB/NES contract

The Special Commissioner had said in his decision that ‘the “right” of substitution was largely illusory’. Park J. thought there was a prior question that ought to have been asked and that was whether there would have been any right of substitution at all in the notional contract between ABB and Mr Hood. He concluded that, in accordance with the facts found by the Special Commissioner, the hypothetical contract would not have contained a substitution provision. There was no substitution provision in the ABB/NES contract and there was no evidence to suggest that Usetech had even tried to have such a provision inserted in that contract. Additionally, the facts indicated that in reality ABB required Mr Hood’s services.

The judge went a stage further and said that even if Mr Hood had raised in negotiation with ABB the possibility of a substitution provision, he considered that ABB would not have agreed to it. Had Mr Hood been unable to provide his services and suggested a replacement, the evidence of Mr Hunter was that ABB would have given some weight to that suggestion. But he added:


“That, however, is a far cry from the direct contract between Mr Hood and ABB containing an express provision which conferred on him an entitlement to substitute someone else for himself, subject only to the substitute having the required skills.”
Counsel for the appellant had also argued that as Mr Hood only had access to the Usetech/NES contract, which contained a substitution clause, and was not aware that there was no corresponding clause in the ABB/NES contract, the hypothetical contract must have contained such a clause. He also said that this argument was reinforced by the self-assessment nature of the tax system. The judge rejected those arguments relying in part on the judgment of Burton J. in R (on the application of the PCG and others) v IRC [2001] STC 629 at p.651.

For all those reasons, the judge did not accept that the hypothetical contract would have contained a substitution clause.

He then went on to consider previous court decisions on substitution clauses at clauses 48 to 54 of his judgment and this provides a useful summary of this subject. Importantly he says at clause 53:


“The presence of a substitution clause is an indicium which points to self- employment, and if the clause is as far-reaching as the one in Tanton it may be determinative by itself.”

So in future, the agency will be responsible for the NI payments that should have been made. Hence, I doubt there will be the situation of having contracts at different levels that don't agree.

And your last para demonstrates that you only need one of the 3 in your favour to be outside ir35.