Reply to: IR35 Insurance / QDos Consulting

[Zero Liability]

I find it bizarre that you cannot shift the burden to the agency in that sort of scenario, since their contract is in effect fraudulent. This is what confuses me about the new proposed legislation re agencies - will they actually bear the costs for these sort of scenarios (retrospectively) or will they just be forced to operate PAYE/NICs for new contracts, or both?

There is of course the situation where a RoS exists but the chance of using it is slim to nil due to business constraints i.e. SC/DV roles or where a client needs to put contractors through some kind of vetting. It is highly unlikely you could ever find one but that I would have thought it's still defensible. You can RoS if you can find someone. You can't so can't exercise RoS. Doesn't mean it's a sham. It just means you couldn't find anyone. The option was still available so stands.

Would the high hurdle of not being able to realistically find someone not cause an issue in this respect though? I.e. the problem being that the term in the contract faces such a high hurdle to be exercised that it is in effect void. Although I guess it depends on how reasonable the client's expectations are in this case, which is more or less your point, just wondering if HMRC would take this approach too. So if the client says you could not exercise ROS simply because your role is too specialised/requires you to pass stringent vetting etc. to be able to accept the sub, and for no other reason, a reasonably fettered ROS would still not be a sham term if I understand you correctly.

[GB9]

And that is always a big problem for us not being able to see the upper contract. We could do everything possible to get it right but can be shafted by something we cannot see.

.

I was lucky in that the agency I went through showed me their onwards contract. We only found out about the master agency not having a ros with client when I went to exercise the ros.

What appears very unfair is that the client opinion seems to have more weight than the supplier. As far as I am concerned, if I have a ros then I don't care what the higher contract says, whereas HMRC do.

[northernladuk]

Well, as you asked, I had a sub on site for 2mth to enable me to take up a better paid contract elsewhere.

What was of interest was that the agency I was with had a contract with the master agency, that also had a ros clause in, but the master agency's contract with client didn't.

And that is always a big problem for us not being able to see the upper contract. We could do everything possible to get it right but can be shafted by something we cannot see.

As always though working practices rule. If the client will agree with you that you can RoS in practice then that would override the contract in an investigation. If they won't then it goes back to what QDOS said about best of your knowledge. If you know it isn't allowed by the client or the upper contract then you have a problem and you are in the sham situation that Steely Dan talks about.

[northernladuk]

Indeed, but I expected better from you tbh.

Not sure why. Your points are valid as are mine. Much better to have it in and try make it work than just giving up and having a contract without one altogether IMO. QDOS confirms this in their post after yours.

Just to clarify one of your points, the reality of what people on here may have in their contract in relation to RoS:

"In the eyes of the contractor, a right of substitution is often seen as a shortcut, guaranteeing that a contract will be outside IR35. This approach however risks being a little simplistic. For a right of substitution in a contract to achieve this desired result, it is critically important that the right is valid. For if the Revenue can show that the purported right in the contract is in fact a 'sham' (a technical term, meaning ‘something other than it purports to be’), then two consequences will follow:

1 not only will the claimed right of substitution not have the desired effect of taking the contractor outside IR35, but

2 the very existence of a 'sham' term in the contract will cast doubt on the validity of the other potentially IR35 helpful terms in the contract.

Thus it can be dangerous to include a right of substitution in a contract where that right is not in fact realistic or valid, since the presence of a 'sham' term can itself have IR35 negative effects." (Egos)

I think 'dangerous' is completely the wrong term. What would be more dangerous would be to not have one in at all. If it's not there you have nothing to argue. If it is in and to the best of your knowledge at least you can start to defend yourself and gives you a lot more outs. For a start a less than detailed investigation may just accept it. A Confirmation of Arrangements letter from your client will also back it up. If it is in there maybe a slim chance that you can use it, much more than it not being there at all. Finally if HMRC do come to the client there is also a chance he will just refer HMRC to the contract and it ends there. HMRC will have to do a lot more work to disprove it than just nail you to the wall if it isn't there.

There is of course the situation where a RoS exists but the chance of using it is slim to nil due to business constraints i.e. SC/DV roles or where a client needs to put contractors through some kind of vetting. It is highly unlikely you could ever find one but that I would have thought it's still defensible. You can RoS if you can find someone. You can't so can't exercise RoS. Doesn't mean it's a sham. It just means you couldn't find anyone. The option was still available so stands.

I have always been interested in the situation where the client says you can use RoS but it would be easier if you just end contract and we will find someone else. I feel that means RoS is still valid but good business sense dictated a different approach. Wouldn't the RoS still stand up in that situation?

If a contractor wants to play the paperwork game knowing full well it isn't going to stand up then that is his problem and he deserves the problems it will bring for not doing proper diligence and sorting his contract out properly, including the other aspects of the contract HMRC may take as a sham. It is up to the contractor to make it work and if it won't then he has to decide to take the risk of find another contract.

How many times has anyone on here ever exercised their RoS clause? I suspect not many, if any, at all. Therefore it will be a sham, and therefore have no bearing (in fact a negative bearing) on the IR35 status. So all of you who have a RoS in your contract and think you are def outside of IR35, think again.

I can't agree with this at all. Just because people don't pull the RoS it hardly means it is a sham. I have never needed it as I complete all my contracts. No way in hell does that prove they were all a sham. I would be disappointed in anyone that though just having the RoS in puts them outside. That has never been said anywhere. It is a strong indicator along with MoO, D&C and a host of lesser pointers. Every pointer is worth following up in my mind. I even take photo copies of my badge to prove it was a contractor one not a permie one. In a tight case it can be all that is needed for a win. To just write of RoS and not fight it is just giving up.

I do agree not many RoS will stand up but I certainly don't agree that it is by default a sham.

So, as for it being the 'strongest indicator', well if it's not a 'sham' that may be true, however, I suspect in reality (& in practice), & in most (98%?) cases for people on here it will be a 'sham', and therefore not a strong indicator at all.

So, back to QDos, you respond 'yes I have a RoS clause', you take the insurance, pay your dues, etc. Then you get a HMRC enquiry/investigation and they show that 'the strongest indicator' (your RoS) is a sham.

Where does your QDos cover leave you?
Probably nowhere because they never tested the validity of your RoS clause; because you never used it, because it was a sham...and of course QDos couldn't test it anyway because they have only seen the written contract and the RoS provision, but you haven't actually started in the role yet.

And just for the record, I have no personal gripe against, or experience of QDos, or any other organisation which provides this type of advice/cover. I'm just sceptical, as maybe others should be

And I can agree with some of this this but again, not testing it does not mean it is a sham. It is still defendable using all the methods I mentioned before. HMRC have to PROVE it's a sham so IMO put it in and do the work to make it stick.

Given the choice of having a less than solid RoS in a contract or none at all I know which way I would go but I also like to think I put the work in to make sure I can prove it along with all the other indicators.

It's a bit mercenary but I would be very happy for HMRC to go after people that rely on nothing but standard wording in their contracts and put no other effort in to it at all. Hopefully they would leave us that do put the effort in alone for a bit longer.

[GB9]

How many times has anyone on here ever exercised their RoS clause? I suspect not many, if any, at all.

Well, as you asked, I had a sub on site for 2mth to enable me to take up a better paid contract elsewhere.

What was of interest was that the agency I was with had a contract with the master agency, that also had a ros clause in, but the master agency's contract with client didn't.

[jamesbrown]

In a nutshell, yes.

Thanks for your replies.

[Qdos Contractor]

Understandable. So, in terms of your tax liability coverage, I think you're saying that, if it is determined at the outset that the case does not have a realistic prospect of success, the cover is void, but otherwise the case is carried forward and, from that point on, any loss will be covered up to the policy limits (and subject to other T&C, such as the policy holder not telling porkies or otherwise damaging the case). Is that correct? I understand that the chances of there not being a realistic prospect of success might be small.

In a nutshell, yes.

[jamesbrown]

[...] However, true story when we did deal with Qdos [...]

This is a useful example, as it demonstrates the point about reputation.

Yes, same type of cover.

We would have to weigh up the 'prospects of success'.

Understandable. So, in terms of your tax liability coverage, I think you're saying that, if it is determined at the outset that the case does not have a realistic prospect of success, the cover is void, but otherwise the case is carried forward and, from that point on, any loss will be covered up to the policy limits (and subject to other T&C, such as the policy holder not telling porkies or otherwise damaging the case). Is that correct? I understand that the chances of there not being a realistic prospect of success might be small.

[Jessica@WhiteFieldTax]

We don't deal with Qdos as a firm any more since they sold their intermediaries insurance arm, Qdos Taxwise to AN Other (a separate, an unhappy story, but not Qdos's fault).

However, true story when we did deal with Qdos:

~ Day 1 - Inspector starts an enquiry into a Company tax affairs. Notice sent to us as accountant and company RO (also us) 2nd class post.

~ Day 3 - 10am - client faxes application to us for insurance with Qdos - it was at the start of a new policy year, and I think he was having an admin day.

~ Day 3 - 11am - post arrives with HMRC letter from Day 1

~ Day 3 - 11:30am - I call HMRC is there any way director knew of enquiry. We concluded no.

~ Day 3 - 12:30pm - Qdos accepted claim

They had every chance to walk away, and they didn't.

[malvolio]

You're responding that, to the best of your knowledge, you have a genuine RoS. The risk of HMRC speaking to your end client etc. and deciding otherwise is the very risk we are covering.

Good point.


However, to answer Steely Dan's point. it is the Right that is important, so whether or not you exercise it is irrelevant, and not exercising it (or even not expecting to) does not make it a sham. That will only happen if the agency has offered you a RoS that is not honoured in their contract with the client. I was greatly annoyed in one lost IR35 case (Dragonfly?) that the Tribunal judge completely ignored the minor detail that the client and the agency knew substitution was not an option but still allowed it to be included in the in the agency/contractor contract. That alone should have been grounds for an appeal since the bottom contract was clearly a sham. As always, the worker carried the can for the bad practices of the agency.


Also, of course, RoS is potentially risky, D&C and MOO are far more relevant to the overall assessment.

[SteelyDan]

You're responding that, to the best of your knowledge, you have a genuine RoS. The risk of HMRC speaking to your end client etc. and deciding otherwise is the very risk we are covering.

Thanks for the response QDos

[Qdos Contractor]

So, back to QDos, you respond 'yes I have a RoS clause', you take the insurance, pay your dues, etc. Then you get a HMRC enquiry/investigation and they show that 'the strongest indicator' (your RoS) is a sham.

Where does your QDos cover leave you?
Probably nowhere because they never tested the validity of your RoS clause; because you never used it, because it was a sham...and of course QDos couldn't test it anyway because they have only seen the written contract and the RoS provision, but you haven't actually started in the role yet.

You're responding that, to the best of your knowledge, you have a genuine RoS. The risk of HMRC speaking to your end client etc. and deciding otherwise is the very risk we are covering.

[SteelyDan]

Where did you hear that?

IR35 Guide - Contractor Weekly

IT contractors warned on IR35 substitution clauses :: Contractor UK

Indeed, but I expected better from you tbh.

Just to clarify one of your points, the reality of what people on here may have in their contract in relation to RoS:

"In the eyes of the contractor, a right of substitution is often seen as a shortcut, guaranteeing that a contract will be outside IR35. This approach however risks being a little simplistic. For a right of substitution in a contract to achieve this desired result, it is critically important that the right is valid. For if the Revenue can show that the purported right in the contract is in fact a 'sham' (a technical term, meaning ‘something other than it purports to be’), then two consequences will follow:

1 not only will the claimed right of substitution not have the desired effect of taking the contractor outside IR35, but

2 the very existence of a 'sham' term in the contract will cast doubt on the validity of the other potentially IR35 helpful terms in the contract.

Thus it can be dangerous to include a right of substitution in a contract where that right is not in fact realistic or valid, since the presence of a 'sham' term can itself have IR35 negative effects." (Egos)

How many times has anyone on here ever exercised their RoS clause? I suspect not many, if any, at all. Therefore it will be a sham, and therefore have no bearing (in fact a negative bearing) on the IR35 status. So all of you who have a RoS in your contract and think you are def outside of IR35, think again.

So, as for it being the 'strongest indicator', well if it's not a 'sham' that may be true, however, I suspect in reality (& in practice), & in most (98%?) cases for people on here it will be a 'sham', and therefore not a strong indicator at all.

So, back to QDos, you respond 'yes I have a RoS clause', you take the insurance, pay your dues, etc. Then you get a HMRC enquiry/investigation and they show that 'the strongest indicator' (your RoS) is a sham.

Where does your QDos cover leave you?
Probably nowhere because they never tested the validity of your RoS clause; because you never used it, because it was a sham...and of course QDos couldn't test it anyway because they have only seen the written contract and the RoS provision, but you haven't actually started in the role yet.

And just for the record, I have no personal gripe against, or experience of QDos, or any other organisation which provides this type of advice/cover. I'm just sceptical, as maybe others should be

[Qdos Contractor]

Ah - mine have all been reviewed as standard, so appeared in the list automagically.

That's the best way to do it.

[DirtyDog]

We include a list of the contracts that are covered by the policy, although we don't need to review them in order for them to be included. Providing, to the best of your knowledge, the application statements apply to any new agreement, it can be added straight away.

Obviously you get unlimited free contract assessments with the policy so it's always a good idea to have the contract checked, but it's not a stipulation.

Ah - mine have all been reviewed as standard, so appeared in the list automagically.