Liability Transfer When SDS Is Outside

[Paralytic]

I can hear the groans already, but I called HMRC to clarify....

According to the call centre guy (I know, I know...) they can only go after the agency is the SDS is inside and they still process it gross, or if they deduct taxes but don't pay them to HMRC, or they were complicit in a fraud, or they "led the client to a decision".

He was adamant that, in this scenario whereby a client took reasonable care and the agency also accepted the reasons for the SDS in good faith, liability would pass back up the chain to the client. Of course, he couldn't provide any links to anything explicitly confirming that...

What you were told would actually make some sense if that how it was to be implemented, but, as others have said, that's not what the draft legislation says.

[Lance]

Right, you cannot transfer a statutory responsibility. In other words, the debt absolutely would be paid by the supply chain in the first instance. The question is whether it could then be recovered as a matter of contract law and I think this part is sketchy (depends on the nature of the clauses and how they were entered into). Even if they were successful, the liability is limited, by design.

in that case, and if the agency took your CO to court to recover the money. Would your defence that this is the shifting of a statutory obligation be sufficient?

Of course if your CO could buy an insurance product that would pay, and everyone in the chain is happy with this it could be moot.
Although how this would work if HMRC found a client has mis-determined hundreds or thousands of contractors in one go I have no idea.

[jamesbrown]

in that case, and if the agency took your CO to court to recover the money. Would your defence that this is the shifting of a statutory obligation be sufficient?

Of course if your CO could buy an insurance product that would pay, and everyone in the chain is happy with this it could be moot.
Although how this would work if HMRC found a client has mis-determined hundreds or thousands of contractors in one go I have no idea.

I don’t think so, because the statutory responsibility wouldn’t even be in question. I think the clauses would need to be examined and established as having the desired intent and having been entered into fairly, with eyes open, to put it colloquially. I think that last hurdle could be higher than anticipated. However, I’m obviously just a contractor, so YMMV, IANAL etc. Again, though, I think the big picture is that the risk to the contractor actually declines after April if you’re lucky enough to secure an outside contract.

[Lance]

I don’t think so, because the statutory responsibility wouldn’t even be in question. I think the clauses would need to be examined and established as having the desired intent and having been entered into fairly, with eyes open, to put it colloquially. I think that last hurdle could be higher than anticipated. However, I’m obviously just a contractor, so YMMV, IANAL etc. Again, though, I think the big picture is that the risk to the contractor actually declines after April if you’re lucky enough to secure an outside contract.

Indeed. I have three....

[DrStrange]

I've now officially received an 'Outside SDS' and the Agency issued a new contract with the indemnity in it.

In layman's terms, the indemnity says that MyCo will indemnify the client, agency and Payroll Provider from all Tax / NIC claims by any third party, including the defence costs.

Naturally, I've declined to agree to that, however the Agency will not budge and have now provided their final position of "take it or leave it".

Now I know I'm lucky to have an outside contract, but this is just too wide to accept, right? Am I being over paranoid here or am I right to think about potentially giving up an outside contract?

On the one hand I can see the argument it's little different to the situation today, but on the other the actual laws have changed so why would I accept another business's potential liability when I no longer legally have to?

[jamesbrown]

I've now officially received an 'Outside SDS' and the Agency issued a new contract with the indemnity in it.

In layman's terms, the indemnity says that MyCo will indemnify the client, agency and Payroll Provider from all Tax / NIC claims by any third party, including the defence costs.

Naturally, I've declined to agree to that, however the Agency will not budge and have now provided their final position of "take it or leave it".

Now I know I'm lucky to have an outside contract, but this is just too wide to accept, right? Am I being over paranoid here or am I right to think about potentially giving up an outside contract?

On the one hand I can see the argument it's little different to the situation today, but on the other the actual laws have changed so why would I accept another business's potential liability when I no longer legally have to?

It's a tricky one but, on balance, I would be inclined to accept if you don't have (or expect to have) plenty of other options. If you're niche, in demand, walk. Otherwise, give it a second thought because these indemnity clauses are unlikely to work in practice and remember that YourCo is not you personally (assuming the indemnity is definitely written that way). If there is no money in YourCo, they're **** out of luck. It's really just a comfort blanket for the supply chain, but it's more Emperor's New Clothes than comfort blanket, IMHO. Either way, if you do proceed, get a commercial review.