Reply to: Falling Foul of IR35

[Old Greg]

INteresting re that study which was finally concluded in June 2007, this surely proves that many who thought they were outside IR35 are going to have a hard case convincing otherwise as many people work in a similar way or with even less chance of proving self employment.

MAny of the things in his contract and workin practices I thought may steer him towards proving self employment but infact not at all.

What are other peoples thoughts

It's kind of worrying:

I have a RoS. Is it in the contract between the end-client and the agency? Don't know. Would I be able to invoke it? I work in a highly specialist area and it would be difficult to find someone who would be acceptable to the client.

I have a week's notice in my contract. Bang goes MOO?

Could probably swing it on Direction and Control.

And I eat in the canteen!

I'm wondering if the best thing is to wind up the Ltd. every 2 years and start up a new one.

[Spiderman]

Cheers.

INteresting re that study which was finally concluded in June 2007, this surely proves that many who thought they were outside IR35 are going to have a hard case convincing otherwise as many people work in a similar way or with even less chance of proving self employment.

MAny of the things in his contract and workin practices I thought may steer him towards proving self employment but infact not at all.

What are other peoples thoughts

[ASB]

No, its's simpler than that. The agency (naming no names, of course) have signed a contract withthe contractor's company containing a clause allowing the use of a substitute, subject to client approval, which is entirely valid and normal in IR35 terms. They also signed a contract with the client stating that only the contractor himself would be allowed to do the work.

Well when you put it that way it certainly does seem much more likely it's misrepresentation. But would it be actionable ?

In order for an action to succeed it would be necessary to establish loss as a result of this. Essentially that then means the individual would have to have won thier case if the clause had been mirrored. This is by no means certain, and would be very difficult to establish.

It may be useful to see it tested, but if the contractor won I think it is likely that all that would hasppen is agencys would be less flexible in contractor side contracts.

[malvolio]

So has Spring put their house in order since then, or are they still following the same practise ?

Oh thank you, thank you, thank you. It's been a fairly crap week and I just needed a good belly laugh to finish it with....

[The AntiChrist]

So has Spring put their house in order since then, or are they still following the same practise ?

[Old Greg]

http://www.bailii.org/uk/cases/UKSC/2007/SPC00618.html

SPRING

Cheers.

[mjshrimpton]

I assume it's a matter of public record who the agency is now? If so, would you be able to either name or post a link to a fuller account of the case?

http://www.bailii.org/uk/cases/UKSC/2007/SPC00618.html

SPRING

[Old Greg]

No, its's simpler than that. The agency (naming no names, of course) have signed a contract withthe contractor's company containing a clause allowing the use of a substitute, subject to client approval, which is entirely valid and normal in IR35 terms. They also signed a contract with the client stating that only the contractor himself would be allowed to do the work.

As per Dacas/Muscat rulings, the agency is acting as the agent of the client and so is deemed to be acting with the client's full knowledge and permsision. So why should they want to include a clause in the contractor's side that they know they have no way of fulfilling? Unless, of course, they were telling lies in order to secure the services of the contractor and so retain their income stream.

The real message is simply not to deal with this agency: by ensuring you are going to be liable for IR35 by virtue of a contract you can't even see, they are effectively paying you 20% less than any agency that will give you a legitimate contract. That is the message that ought to be shouted from the rooftops.

I assume it's a matter of public record who the agency is now? If so, would you be able to either name or post a link to a fuller account of the case?

[malvolio]

No, its's simpler than that. The agency (naming no names, of course) have signed a contract withthe contractor's company containing a clause allowing the use of a substitute, subject to client approval, which is entirely valid and normal in IR35 terms. They also signed a contract with the client stating that only the contractor himself would be allowed to do the work.

As per Dacas/Muscat rulings, the agency is acting as the agent of the client and so is deemed to be acting with the client's full knowledge and permsision. So why should they want to include a clause in the contractor's side that they know they have no way of fulfilling? Unless, of course, they were telling lies in order to secure the services of the contractor and so retain their income stream.

The real message is simply not to deal with this agency: by ensuring you are going to be liable for IR35 by virtue of a contract you can't even see, they are effectively paying you 20% less than any agency that will give you a legitimate contract. That is the message that ought to be shouted from the rooftops.

[Chugnut]

I'm not sure about this and whether there is any question of misrepresentation in any way. [Unless of course the agency warranted the clauses were mirrored].

It is common for terms to be different in contracts throughout any supply chain. These can be contradictory and expose certain places in the chain to be at a greater or lesser risk in the event of things going wrong.

In this case it appears there contactor had a RoS but the agency didn't. So what?

The result of this is surely only that if the contractor had decided to substitute and the end client refused then the agency has a problem. They may get sued by the contractor for breach - because there is now an actual breach of condition, equally the client could sue the agent for them failing to provide the service the client had bought.

Unfortunately of course with IR35 it is a complete fiction that gets judged, the prevailing "wisdom" seems to go clients wouldn't accept a substitute therefore you have no right. It is wholly wrong to place any more weight on the clients contract than the suppliers.

Just because you haven't tried to enforce a clause deosn't make it any less valid.

Certainly a grey area.

I was assuming that anyone familiar enough with IR35 and the need to have a sub clause in their contract, would be asking the agent whether there was one in the upper level contract as well. So the assumption included the agent being economical with the truth regarding the client's contract terms.

The agency is the only party privy to both contracts by default. If they knew that the terms in one could be nullified by the other, but the other parties didn't, I'd say they were leaving themselves open to justifiable legal action by either party.

After all, as the service provider I'd be under the impression from my contract that I could sub the work out but be perfectly within my rights to pay the sub less, thus still being able to generate an income stream for the company. Any attempt to invoke this sub is then rejected by the client. My company can't generate income for that period. That's grounds for misrepresentation surely?

[ASB]

Spot on.

How the agency can ask you to countersign a contract containing a substitution clause when the upper level once makes no mention of it beggars belief. This could be a good thing; with the potential of legal action knocking on agencies doors, maybe they'll be more likely to mirror terms.

I'm not sure about this and whether there is any question of misrepresentation in any way. [Unless of course the agency warranted the clauses were mirrored].

It is common for terms to be different in contracts throughout any supply chain. These can be contradictory and expose certain places in the chain to be at a greater or lesser risk in the event of things going wrong.

In this case it appears there contactor had a RoS but the agency didn't. So what?

The result of this is surely only that if the contractor had decided to substitute and the end client refused then the agency has a problem. They may get sued by the contractor for breach - because there is now an actual breach of condition, equally the client could sue the agent for them failing to provide the service the client had bought.

Unfortunately of course with IR35 it is a complete fiction that gets judged, the prevailing "wisdom" seems to go clients wouldn't accept a substitute therefore you have no right. It is wholly wrong to place any more weight on the clients contract than the suppliers.

Just because you haven't tried to enforce a clause deosn't make it any less valid.

[IR35 Avoider]

On the subject of closing companies to minimise IR35 risks, I would have thought that it would be perfectly acceptable (indeed sound commercial practice) to start a new company for each client. After all, each client is a unique set of circumstance with different IR35 risks. You don't want the unexpected failure of one contract to be paid for by the profits of another. The limited company concept exists for the purpose of ring-fencing risk. You are entitled to use it for that purpose. It's the same principle of minimising risk followed by the film industry, when they set up a separate company for each film.

[Chugnut]

Reading the case law summary itself, it seems that there wasn't a RoS in the uppoer contract while there was in the lower one. Thre are some advocating that the contractor should be suing the agency for misrepresentation, and that would be an interesting discussion...

Spot on.

How the agency can ask you to countersign a contract containing a substitution clause when the upper level once makes no mention of it beggars belief. This could be a good thing; with the potential of legal action knocking on agencies doors, maybe they'll be more likely to mirror terms.

[malvolio]

We certainly wouldn't withhold cover if the case was lost due to reasons beyond the contractor's control, i.e. the upper level contract and unexpected testimonies from the end client.

Insurance is offered on the basis of a working and business practice questionnaire alone and, providing no material fact has been withheld by the contractor, there are no other issues that could affect the cover.

Re substitution: for a right to be genuine the client must only be able to reject a replacement on reasonable grounds related to skills, qualifications etc. The end client must not have an unreasonable right of veto. If you had a good, unfettered right of substitution in your contract and the upper level agreement and then the client rejected a replacement without giving reason, you may have grounds to challenge the decision on a legal basis.

Reading the case law summary itself, it seems that there wasn't a RoS in the uppoer contract while there was in the lower one. Thre are some advocating that the contractor should be suing the agency for misrepresentation, and that would be an interesting discussion...

[Chugnut]

Thanks for the answer QDOS.