Reply to: IR35 Liability transfer

[jamesbrown]

Many thanks for the information James, much appreciated. The Kingsbridge policy sounds interesting and their website does confirm it covers liability whether it is me or the fee payer that is liable. From my previous research I was told this sort of cover simply wasn't legal - https://www.ir35shield.co.uk/Article...y-need-to-know says . I'll enquire with Kingsbridge and ask what their opinion on that view is.

Re the "prospect of success" aspect I noticed that the Kingsbridge policy says that this term is automatically met if an outside determination has been made by an approved supplier (which they include as part of the cover), so that would seem to reduce the chance of the policy not paying out.

It will be interesting to see what the cost of this cover is, if it's similar to other insurances at around a day's fees for a 12-month policy then I may well be tempted for the additional peace of mind.

My only suggestion would be to read the policy terms very carefully. I haven't yet seen a tax loss policy that doesn't have a reasonable prospect of success clause. Certainly, an initial outside IR35 opinion is needed, but the facts can change over time or the working practices may be different from the very beginning and there will be a responsibility under the T&Cs for that to be communicated, so it is never going to be sign and forget about it. You should also check whether it's written under a claims made basis, i.e., you need to have the policy in place at the time a claim is made, or whether it covers a discrete policy period (less common). Obviously, claims can arise far, far down the line.

[Tubaman]

Understood.

Regarding insurance, the closest thing to insurance of the supply chain (that I'm aware of) is offered by Kingsbridge:

https://www.kingsbridge.co.uk/produc...protect-cover/

No affiliation and, in fact I am neither recommending or not recommending them, as I have no personal experience.

However, you should bear in mind that all of these insurance products will have "reasonable prospect of success" clauses and there is unlikely to be a reasonable prospect of success if the client is in agreement with HMRC. Personally, I think IR35 tax loss insurance is a waste of money, unlike insurance for investigations/legal expenses, which makes sense in general and especially for Chapter 8 engagements.

Many thanks for the information James, much appreciated. The Kingsbridge policy sounds interesting and their website does confirm it covers liability whether it is me or the fee payer that is liable. From my previous research I was told this sort of cover simply wasn't legal - https://www.ir35shield.co.uk/Article...y-need-to-know says

Any insurance policy bought by a contractor that purports to insure the client or agency against tax liabilities under Off-payroll working cannot possibly work and is highly likely to be void in law.

. I'll enquire with Kingsbridge and ask what their opinion on that view is.

Re the "prospect of success" aspect I noticed that the Kingsbridge policy says that this term is automatically met if an outside determination has been made by an approved supplier (which they include as part of the cover), so that would seem to reduce the chance of the policy not paying out.

It will be interesting to see what the cost of this cover is, if it's similar to other insurances at around a day's fees for a 12-month policy then I may well be tempted for the additional peace of mind.

[jamesbrown]

As a contractor currently in an outside IR35 role with such an indemnity clause in the contract, I've also been following the recent articles with interest.

The latest article by Adrian Marlowe ends with
The answer for me was there was little choice available. After seeking advice from the IPSE helpline, I tried to negotiate with the agency to get the clause removed or at least limited to a reasonable maximum amount of liability, but their answer was more than clear, i.e. accept the contract as it is or they'll find someone else for the role. As a 'one man band' my power to negotiate was zero. Yes, I could have walked, but as that was the only firm offer I've had following being on the bench for 9 months, in practical terms it was take it or have no income for a further unknown period, or take a low paid unskilled job just to cover the bills. Not much of a choice.

One frustrating thing is the risk doesn't seem to be insurable. Whether the clause is enforceable or not is, as we've seen, open to debate. But surely it should be possible to buy insurance to cover a potential risk? Apparently not. I've approached my current PI/PL/EL insurers and also another company specialising in IR35 cover (as well as having IPSE+ membership), but none of these are willing to offer cover for this indemnity clause, only for investigations to my Ltd company or me personally. One of them explained it's not legal to provide insurance against someone else's legal liability (example given you can't buy insurance against a neighbour's house burning down, only you own house). So as the tax liability legally resides with the fee payer (in my case the agency, could be the client) it's uninsurable by me. But surely if there is a chance the indemnity clause is enforceable, it becomes my (my Ltd co's) liability, and so should be possible to insure against? Seems to be a catch-22 situation to me.

All good fun (not)!

Understood.

Regarding insurance, the closest thing to insurance of the supply chain (that I'm aware of) is offered by Kingsbridge:

https://www.kingsbridge.co.uk/produc...protect-cover/

No affiliation and, in fact I am neither recommending or not recommending them, as I have no personal experience.

However, you should bear in mind that all of these insurance products will have "reasonable prospect of success" clauses and there is unlikely to be a reasonable prospect of success if the client is in agreement with HMRC. Personally, I think IR35 tax loss insurance is a waste of money, unlike insurance for investigations/legal expenses, which makes sense in general and especially for Chapter 8 engagements.

[Tubaman]

As a contractor currently in an outside IR35 role with such an indemnity clause in the contract, I've also been following the recent articles with interest.

The latest article by Adrian Marlowe ends with

The bigger point, though? It’s this. Why would a contractor want to sign up to this kind of clause anyway? Why invite the hassle? Why take the risk?

The answer for me was there was little choice available. After seeking advice from the IPSE helpline, I tried to negotiate with the agency to get the clause removed or at least limited to a reasonable maximum amount of liability, but their answer was more than clear, i.e. accept the contract as it is or they'll find someone else for the role. As a 'one man band' my power to negotiate was zero. Yes, I could have walked, but as that was the only firm offer I've had following being on the bench for 9 months, in practical terms it was take it or have no income for a further unknown period, or take a low paid unskilled job just to cover the bills. Not much of a choice.

One frustrating thing is the risk doesn't seem to be insurable. Whether the clause is enforceable or not is, as we've seen, open to debate. But surely it should be possible to buy insurance to cover a potential risk? Apparently not. I've approached my current PI/PL/EL insurers and also another company specialising in IR35 cover (as well as having IPSE+ membership), but none of these are willing to offer cover for this indemnity clause, only for investigations to my Ltd company or me personally. One of them explained it's not legal to provide insurance against someone else's legal liability (example given you can't buy insurance against a neighbour's house burning down, only you own house). So as the tax liability legally resides with the fee payer (in my case the agency, could be the client) it's uninsurable by me. But surely if there is a chance the indemnity clause is enforceable, it becomes my (my Ltd co's) liability, and so should be possible to insure against? Seems to be a catch-22 situation to me.

All good fun (not)!

[jamesbrown]

I'm not as the article clearly states 'in practice, had submitted to the control of the hirer’s project manager,' so am talking in context of the article but yes I do see your point.

I meant your "don't take any work on" commentary, but it doesn't matter.

I get you and I think I'm being too specific on wording of the article. The article discusses a very specific example and that can be (IMO) mitigated. It says the hirer admits work has been done out of scope of the contract. Easy case to make. It's in the contract. Don't work on stuff outside of the black and white lettering of the contract.

The point is that HMRC and the client are in agreement for whatever reason (read: because the client has shat themselves) and that's really all that matters.

The critical thing that changed with Chapter 10 is where the liability falls in the first instance and the associated incentives (to avoid it). The client has no incentive to help the contractor when the liability can be claimed from them. With Chapter 8, there is more balanced incentive. Sure, the client doesn't really want to get involved, but they are also not directly liable.

[malvolio]

We have never said you can't take on extra or different work.

We have always said it should be the subject of a new schedule to the overarching contract with the same Ts&Cs.

[northernladuk]

As an aside, I think you're confusing D&C with MoO.

I'm not as the article clearly states 'in practice, had submitted to the control of the hirer’s project manager,' so am talking in context of the article but yes I do see your point.

Regardless, no, that is not the crux of the article at all. The crux of the article is that these clauses may be enforceable. If the client changes their mind for whatever reason, you have agreed to accept the liabilities as claimed (on the client or fee payer). Moreover, in the context of any subsequent tribunal, good luck building a case when the client agrees with HMRC that they made a mistake

I get you and I think I'm being too specific on wording of the article. The article discusses a very specific example and that can be (IMO) mitigated. It says the hirer admits work has been done out of scope of the contract. Easy case to make. It's in the contract. Don't work on stuff outside of the black and white lettering of the contract.

But going back to the crux of the article, yes you are right.

[jamesbrown]

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


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?

As an aside, I think you're confusing D&C with MoO.

Regardless, no, that is not the crux of the article at all. The crux of the article is that these clauses may be enforceable. If the client changes their mind for whatever reason, you have agreed to accept the liabilities as claimed (on the client or fee payer). Moreover, in the context of any subsequent tribunal, good luck building a case when the client agrees with HMRC that they made a mistake

[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?

[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....

[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.

[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.

[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.

[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.

[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.