Reply to: Contract indemnifies agency (at my expense) against HMRC enquiries

[cojak]

Call me suspicious or say that once bitten is twice shy, but it's worth thinking about the motives of the parties here.

For public sector jobs (and in 2020 of course private sector - does the contract under review go beyond April 2020?) the sequence of decisions/events should be:

End client makes a decision as to inside or outside the scope of IR35.

Clearly an "inside IR35" decision means that they become liable for employers NIC.

There is a debate raging about where that particular liability sits but legally it's with the engager/end user and you as the contractor are not liable.

There is no doubt a debate about how the day rate in impacted and this brings in the agent.

In tax parlance, this is probably the "fee payer". This means that if the end user has decided on an inside IR35 status, the fee payer is responsible for paying over tax, em'ee and em'er NIC.

So, clearly the fee payer is more inclined to persuade the end user for an outside IR35 decision as this leaves more headroom in the day rate for fees etc.

Unless of course, the day rate is grossed down from the headline rate, less tax, NI (x2), fees etc.

In the event hat the decision is "outside IR35" and is found to be wrong - remember that you can and always should ask these parties for a note of how they have arrived at their decision - then the fee payer is liable.

Be clear. This is not the contractor liability.

Therefore we have seen contracts where the potential liability is basically passed through the contract chain to the contractor.

I'm not lawyer enough to know if these clauses can be made to stick, but I suspect that they have had the advantage of some good legal minds.

So end user and fee payer are probably on a good thing here. They are both strongly motivated to go for an outside IR35 status, knowing that should there subsequently be a manure/ventilation interface, it's likely to cost them nothing except their reputation.

The end user won't mind, because no contractor likes to upset the end user. The fee payer may mind more but given the size of the market and if all of them are doing the same, the contractor choice is then frying pan or fire.

There needs to be a drive towards two things.

First, contractor fees need to be driven in a "net up" fashion. How much do you want for the job, accepting that the amount will be subject to tax and em'ee NIC? Once you've decided how much you are worth, gross that amount for em'er NIC and fees and that is what the end user pays.

If the end user baulks at that (not the fee payer as they should be neutral in this), there is a negotiation to be had.

Second, the black boxes operated by some fee payers have to be opened to the harsh light of audit. If contractors continue to assume that the black box operates in their favour and ask no questions, they have only themselves to blame.

We predict the rise of new models in the market and the existing players will be forced to adapt or die.

Thanks webberg - I am sooo going to save this post...

[zerosum]

To be fair here. The agency really thought this was about ir35. When they queried their lawyers, they found out it was about the agency directive (see my previous post). As such, they were happy to change the liabilities clause to make this explicit. So the contract now stipulates that the supplier is responsible only for its own liabilities.

The key is for contractors not to just meekly sign up to anything.

Thanks for all the responses.

[ShandyDrinker]

We predict the rise of new models in the market and the existing players will be forced to adapt or die.

Good post.

My gut feeling is that many contractors will adapt by bending over and taking it or more likely by going perm.

Both clients and agencies are going to put pressure on contractors to take the hit with the ace up their sleeve of claiming skills shortage in the event that contractors don't acquiesce.

I really do hope that many contractors grow a pair and stand their ground but accept that circumstances may not allow many to be so bold.

[webberg]

Call me suspicious or say that once bitten is twice shy, but it's worth thinking about the motives of the parties here.

For public sector jobs (and in 2020 of course private sector - does the contract under review go beyond April 2020?) the sequence of decisions/events should be:

End client makes a decision as to inside or outside the scope of IR35.

Clearly an "inside IR35" decision means that they become liable for employers NIC.

There is a debate raging about where that particular liability sits but legally it's with the engager/end user and you as the contractor are not liable.

There is no doubt a debate about how the day rate in impacted and this brings in the agent.

In tax parlance, this is probably the "fee payer". This means that if the end user has decided on an inside IR35 status, the fee payer is responsible for paying over tax, em'ee and em'er NIC.

So, clearly the fee payer is more inclined to persuade the end user for an outside IR35 decision as this leaves more headroom in the day rate for fees etc.

Unless of course, the day rate is grossed down from the headline rate, less tax, NI (x2), fees etc.

In the event hat the decision is "outside IR35" and is found to be wrong - remember that you can and always should ask these parties for a note of how they have arrived at their decision - then the fee payer is liable.

Be clear. This is not the contractor liability.

Therefore we have seen contracts where the potential liability is basically passed through the contract chain to the contractor.

I'm not lawyer enough to know if these clauses can be made to stick, but I suspect that they have had the advantage of some good legal minds.

So end user and fee payer are probably on a good thing here. They are both strongly motivated to go for an outside IR35 status, knowing that should there subsequently be a manure/ventilation interface, it's likely to cost them nothing except their reputation.

The end user won't mind, because no contractor likes to upset the end user. The fee payer may mind more but given the size of the market and if all of them are doing the same, the contractor choice is then frying pan or fire.

There needs to be a drive towards two things.

First, contractor fees need to be driven in a "net up" fashion. How much do you want for the job, accepting that the amount will be subject to tax and em'ee NIC? Once you've decided how much you are worth, gross that amount for em'er NIC and fees and that is what the end user pays.

If the end user baulks at that (not the fee payer as they should be neutral in this), there is a negotiation to be had.

Second, the black boxes operated by some fee payers have to be opened to the harsh light of audit. If contractors continue to assume that the black box operates in their favour and ask no questions, they have only themselves to blame.

We predict the rise of new models in the market and the existing players will be forced to adapt or die.

[amanwhoisquiet]

Fair enough - best efforts has changed then, it used to mean "when we can be bothered within the next six months".

Yeah, one of those things that's easy to say you're 'certain' you know what it means. I only know because I've been pulled up for it before. I'm sure it'd never be a real problem, but you never know.

[LondonManc]

Switch this out for 'reasonable' as 'best' could hurt you later.

Understanding endeavours clauses: best, reasonable and all reasonable

Fair enough - best efforts has changed then, it used to mean "when we can be bothered within the next six months".

[amanwhoisquiet]

Rather than any definites, make sure that you assist on a "best efforts" basis, so that it doesn't impinge on any future work that you are conducting at the time.

Switch this out for 'reasonable' as 'best' could hurt you later.

Understanding endeavours clauses: best, reasonable and all reasonable

[LondonManc]

Rather than any definites, make sure that you assist on a "best efforts" basis, so that it doesn't impinge on any future work that you are conducting at the time.

Also, make it clear that this does not let them off the hook if the working practices and/or deliverables vary to what the agency claimed they were originally - e.g. working from home, what you're actually doing, SDC, etc.

[zerosum]

It seems that it's separate from IR35, and to do with the Agency Tax Legislation which could impose a debt liability transfer should the company be found not to be treating the payments made to the consultant as employment income (not dividends).

So this seems fair enough, in the sense that I'm confident about my accounting arrangements, that I'm not funnelling vast wads of cash offshore etc. The issue is that the clause makes it sound like it's connected with IR35.

[zerosum]

Is this a plausible scenario?

No, it's rubbish. Had a more detailed chat with Qdos. HMRC can reopen a closed company if they really suspect tax avoidance, so this is not a legitimate pretext to have such a clause.

Qdos reiterated that TLC35 absolutely wouldn't cover anyone else's tax liabilities/documentation research/etc and I should revert to a standard 'supplier agrees they are liable for PAYE/NICs' in case of getting IR35 status wrong, no employer/employee relationship implied.

Honestly, the amount of pressure I was under to sign, with no questions asked. 'Hundreds of other contractors, this is the first time someone has made a fuss'. 'It's a bog standard contract'. 'You must have only dealt with small shops in the past'. Etc.

[ShandyDrinker]

Either that or they try shovelling everyone into inside IR35 contracts.

I'd agree with that.

I suspect we're going to see much more of this in the coming months. I'll find out myself early next year when I'll be looking for my next contract.

[cojak]

My reading of it is that we're likely to see more and more agencies now try this on with clauses in their contracts effectively trying to pass the buck for failure of IR35 status decisions being passed on to the contractor. I wouldn't be surprised if this becomes more commonplace in the run up to April 2020.

Either that or they try shovelling everyone into inside IR35 contracts.

[ShandyDrinker]

Is this a plausible scenario?

My reading of it is that we're likely to see more and more agencies now try this on with clauses in their contracts effectively trying to pass the buck for failure of IR35 status decisions being passed on to the contractor. I wouldn't be surprised if this becomes more commonplace in the run up to April 2020.

[pauldee]

So it turns out that it's really to cover the scenario where I close my company and HMRC then go after the agency for debt collection because they determine that actually, a contract was inside IR35

Is this a plausible scenario?

[Hobosapien]

Agency showing why we think they're such slimy shysters.

Do not sign a contract until you are happy with the terms you are signing.

Also do not start a contract unsigned as that infers you accept the terms and the agency no longer requires a signature, though not sure if that would stand up in court.