Reply to: Query regarding public sector opportunities

[TheFaQQer]

BUT, as Thefaqqer points out the liability is with the fee payer, so if there isn't anything in the contract regarding the passing of liability, why should the OP care?

If the scenario arose, I would challenge the legality of any attempt to pass the liability from fee payer to contractor. IANAL, but I am as certain that I can be that any clauses like that would be unenforceable / illegal.

[gables]

Probably yes. HMRC would quite likely see the LofE as a sham arrangement intended to avoid (or even evade) a lawful tax burden. The LofE tries to mark you as working for the agency which, while contractually defensible, is not a real representation of your role or theirs.

The loophole they are trying to use is that if you are supplied as a manpower replacement - i.e. filling a role within the end client organisation - then PS IR35 rules apply and the PS makes the determination. If you are supplied as an external resource - individually or via a real consultancy with a manpower supply contract with the end client - then the old IR35 tests apply. The dividing line, in your case, is therefore the nature of the end role.

Remember the agency wants you in there so you earn them their money, nothing else. How they get you there is not really their concern. And since taxes are ultimately your problem, why should they care?

BUT, as Thefaqqer points out the liability is with the fee payer, so if there isn't anything in the contract regarding the passing of liability, why should the OP care?

[washed up contractor]

AIUI the legislation is clear that in the public sector, a determination must be made about IR35 status and the correct level of tax must be deducted by the fee payer before passing the balance to the contractor limited company. The fee payer is always liable for making the correct payment to HMRC on behalf of the contractor.

In this situation, the determination has been made by the client as inside (first step is now to ask how they made that assessment, since they must provide that information within a set time period - failure to do so makes them liable for the tax) but the fee payer is essentially saying that they will make a gross payment without paying any tax or NI. Yet they are the ones who are liable for making sure this is correct - so either they are ignorant of the legislation, have a great lawyer who has spotted something here, or are prepared to chance not getting caught. All of which would set alarm bells ringing here - why are they prepared to put their business at risk for you? How does the benefit outweigh the risk to the agency in any way?

At first glance, this might look like it's not your problem - the risk lies with the fee payer (something that agencies have cried foul about since the draft legislation, if not before), so if they get it wrong then it's their problem not yours. If you are tempted then I would scour the contract and engagement letter carefully to see exactly what you might be letting yourself in for - there is evidence that more agents than before are including clauses which attempts to pass the liability down the chain to the individual (this is not legal, but there may be ways to word it so that you can still be caught - IANAL).

Bear in mind that the client has said that you are inside IR35 in the contract, so it would be an "interesting" test of the legislation if the fee payer didn't deduct those taxes because they have a letter in place between you and them which says otherwise. I'd be very interested to see the contents of the engagement letter so that I might be able to get a wiser man than I to look at it.

I agree with you.

Personally, I wouldnt touch any role in the PS but that's my choice. The OP already has confirmation that whatever the arrangement, it is contrived to be outside IR35 since the role has been declared inside. The agent says the 'only' way to be outside is via this neferious letter of engagement.

I dont care what anyone says on this but the risk is just far too high imho.

[malvolio]

Whilst I won't pretend to have put it that way, I'm glad someone understands where I am coming from. My concern is, if I go in and do the work under the banner of "Letter of Engagement", could I end up being within IR35?

Probably yes. HMRC would quite likely see the LofE as a sham arrangement intended to avoid (or even evade) a lawful tax burden. The LofE tries to mark you as working for the agency which, while contractually defensible, is not a real representation of your role or theirs.

The loophole they are trying to use is that if you are supplied as a manpower replacement - i.e. filling a role within the end client organisation - then PS IR35 rules apply and the PS makes the determination. If you are supplied as an external resource - individually or via a real consultancy with a manpower supply contract with the end client - then the old IR35 tests apply. The dividing line, in your case, is therefore the nature of the end role.

Remember the agency wants you in there so you earn them their money, nothing else. How they get you there is not really their concern. And since taxes are ultimately your problem, why should they care?

[pmeswani]

Thanks everyone. I think I will take Theresa Mays stance on this and say no deal is better than a bad deal. This sounds like more headache than what it is worth.

[TheFaQQer]

AIUI the legislation is clear that in the public sector, a determination must be made about IR35 status and the correct level of tax must be deducted by the fee payer before passing the balance to the contractor limited company. The fee payer is always liable for making the correct payment to HMRC on behalf of the contractor.

In this situation, the determination has been made by the client as inside (first step is now to ask how they made that assessment, since they must provide that information within a set time period - failure to do so makes them liable for the tax) but the fee payer is essentially saying that they will make a gross payment without paying any tax or NI. Yet they are the ones who are liable for making sure this is correct - so either they are ignorant of the legislation, have a great lawyer who has spotted something here, or are prepared to chance not getting caught. All of which would set alarm bells ringing here - why are they prepared to put their business at risk for you? How does the benefit outweigh the risk to the agency in any way?

At first glance, this might look like it's not your problem - the risk lies with the fee payer (something that agencies have cried foul about since the draft legislation, if not before), so if they get it wrong then it's their problem not yours. If you are tempted then I would scour the contract and engagement letter carefully to see exactly what you might be letting yourself in for - there is evidence that more agents than before are including clauses which attempts to pass the liability down the chain to the individual (this is not legal, but there may be ways to word it so that you can still be caught - IANAL).

Bear in mind that the client has said that you are inside IR35 in the contract, so it would be an "interesting" test of the legislation if the fee payer didn't deduct those taxes because they have a letter in place between you and them which says otherwise. I'd be very interested to see the contents of the engagement letter so that I might be able to get a wiser man than I to look at it.

[northernladuk]

You can ask for the output from the ESS tool as evidence of their decision. The one time I tried this with a PS client didn't go down very well though.

[eek]

Like with the rest of my comments and my original post, I ask out of ignorance, would I ask the agency to provide some form of evidence from the client that the opportunity is outside IR35?

If I progress further and am offered the opportunity as a result, I will get in touch with QDOS and IPSE to see what they say, but I think I have enough ground to go back to the agency and say No Deal.

I wouldn't be going back and saying No Deal - I would be going back to check where the inside IR35 determination is coming from and why they are so confident that the contract is actually outside IR35.

Equally because we don't know what is going on here speaking to QDOS and IPSE to see what they suggest would be an idea because at the moment no-one on here knows how to play this situation...

[pmeswani]

Some agencies have changed to a managed service engagement and worked with the PS client to be outside. I'm a little suspicious how this would stand up to scrutiny should HMRC ever take an interest but as long as the PS body say its outside I guess it's a go for now. I wouldn't be confident about a simple letter of engagement being the only thing protecting me but you could get evidence they ran you through the the tool and were outside to back it up. I'd be straight on the phone to QDOS and the like about this one as well.

Like with the rest of my comments and my original post, I ask out of ignorance, would I ask the agency to provide some form of evidence from the client that the opportunity is outside IR35?

If I progress further and am offered the opportunity as a result, I will get in touch with QDOS and IPSE to see what they say, but I think I have enough ground to go back to the agency and say No Deal.

[northernladuk]

Some agencies have changed to a managed service engagement and worked with the PS client to be outside. I'm a little suspicious how this would stand up to scrutiny should HMRC ever take an interest but as long as the PS body say its outside I guess it's a go for now. I wouldn't be confident about a simple letter of engagement being the only thing protecting me but you could get evidence they ran you through the the tool and were outside to back it up. I'd be straight on the phone to QDOS and the like about this one as well.

[eek]

Whilst I won't pretend to have put it that way, I'm glad someone understands where I am coming from. My concern is, if I go in and do the work under the banner of "Letter of Engagement", could I end up being within IR35?

Well you should be inside IR35 as that is what the end client has determined. Working round it to end up outside opens up a whole different set of issues and I can't see many of them being good for you.

[BlasterBates]

Generally speaking I would agree with you, but as the agency has approached me with an opportunity that was originally within IR35, would a letter of engagement (between the agency and the client as well as agency and myself) get around this issue?

Well it does sound like the client would in effect be changing their terms and conditions, that doesn't throw a good light on it, but there is no reason why the client couldn't change them if they're aware they really need a "real contractor" who will be working independently. In the end if the client accept is as outside IR35 I don't see a problem particularly if the contract is written in a similar way to a letter of engagement.

[pmeswani]

You would be a far, far braver person than me and I would be checking what backup you would have if this went pear-shaped. If you are an IPSE member check with their helpdesk or speak to QDOS and see....

I have IPSE membership, and if the opportunity went further than a telephone call, I will take it further.

[pmeswani]

Hmm...I wonder if the PSB is going to be happy that their agency is trying to overturn their decision making?

Whilst I won't pretend to have put it that way, I'm glad someone understands where I am coming from. My concern is, if I go in and do the work under the banner of "Letter of Engagement", could I end up being within IR35?

[eek]

Generally speaking I would agree with you, but as the agency has approached me with an opportunity that was originally within IR35, would a letter of engagement (between the agency and the client as well as agency and myself) get around this issue?

You would be a far, far braver person than me and I would be checking what backup you would have if this went pear-shaped. If you are an IPSE member check with their helpdesk or speak to QDOS and see....