Reply to: 'Outside IR35' Public Sector contract offered but can I rely on it?

[eek]

Let's be honest here.

As everyone here says, the onus is on the agency and client.

It sounds like the ONLY reason it's outside IR35 is to get contractors like you to sign up in the first place.

If the agency was confident that it was outside, they wouldn't have put in that clause in the first place.

I think that we will be seeing more contracts like this in the future next year will be seeing those contractors (those who are still in them) coming here complaining that they've been bitten on the bum by said contract.

(PS - I'm with Lance on this one - I reckon they'll terminate your contract in March and will try to make you sign a new non-Ltd/umbrella contract.)

Agencies will add that type of clause in as
1) it's the typical kneejerk response you get when the end client has a contract that explicitly passes the responsibility back to the agency
2) they've been told that they need it to cover a particular scenario (where the behavior of the contractor makes the role inside IR35)

The fact it wouldn't stand up in court isn't something they've thought about as it's never occurred yet. See also the very different viewpoints regarding agency regulation opt outs that Andy Hallett has compared to other posters here.

[Lance]

Let's be honest here.

As everyone here says, the onus is on the agency and client.

It sounds like the ONLY reason it's outside IR35 is to get contractors like you to sign up in the first place.

If the agency was confident that it was outside, they wouldn't have put in that clause in the first place.

I think that we will be seeing more contracts like this in the future next year will be seeing those contractors (those who are still in them) coming here complaining that they've been bitten on the bum by said contract.

(PS - I'm with Lance on this one - I reckon they'll terminate your contract in March and will try to make you sign a new non-Ltd/umbrella contract.)

What I meant was that if it was to change that’s how they do it.

I don’t think it will change as it’s public sector so they have already made the determination (April 2018 or was it 17?)

[cojak]

Let's be honest here.

As everyone here says, the onus is on the agency and client.

It sounds like the ONLY reason it's outside IR35 is to get contractors like you to sign up in the first place.

If the agency was confident that it was outside, they wouldn't have put in that clause in the first place.

I think that we will be seeing more contracts like this in the future next year will be seeing those contractors (those who are still in them) coming here complaining that they've been bitten on the bum by said contract.

(PS - I'm with Lance on this one - I reckon they'll terminate your contract in March and will try to make you sign a new non-Ltd/umbrella contract.)

[SussexSeagull]

I expect this is something that will need to be tested but the whole point of the exercise was the end client assume responsibility for the determination.

[Lance]

Yes, I will only accept genuine outside IR35 contracts from the start. My concern in the original post above is that, with the transfer of liability clause, the impact from the client making a different ruling later will fall on me. I have been unable so far to get a definitive answer about whether an outside to inside change mid contract would apply retrospectively for the whole contract or only from the date of the new determination (assuming no change in working practices just the client taking a different view). I doubt if HMRC knows either.

it won't happen like that. It will be a new contract and the old one terminated.

[PartOfTheUnion]

Well Done Stooza, the more of us that stand up to this sort of thing the less it is going to happen in the first places.

I am currently trying to find a new contract as I have had enough of the frustration my current one causes me, I currently only talk to agents if the determination has ready been made for it to be outside IR35.

Yes, I will only accept genuine outside IR35 contracts from the start. My concern in the original post above is that, with the transfer of liability clause, the impact from the client making a different ruling later will fall on me. I have been unable so far to get a definitive answer about whether an outside to inside change mid contract would apply retrospectively for the whole contract or only from the date of the new determination (assuming no change in working practices just the client taking a different view). I doubt if HMRC knows either.

[Hairlocks]

Well Done Stooza, the more of us that stand up to this sort of thing the less it is going to happen in the first places.

I am currently trying to find a new contract as I have had enough of the frustration my current one causes me, I currently only talk to agents if the determination has ready been made for it to be outside IR35.

[Stooza]

a clause to transfer a statutory obligation is almost certainly not going to hold up in court.
If they issue an SDS with an outside determination, and an outside contract, and you stick to the terms of the contract, then you're good. If they get found, or accused, by HMRC to have issued an incorrect determination it's their liability in legislation. That legislation trumps that clause.

Clauses like that predate the IR35 changes that came to the public sector. It's just agency arse covering against you failing to pay your tax.

CAVEAT: I'm not a lawyer & I've not read your clause.

As somebody said above, it surely doesn't matter if statute trumps a contract clause if I sign to say I'm willing to pay it. Statute says they pay it to HMRC. My contract says they can come after me for it.

I get that it looks just like general arse covering, but when questioned they did say it was specifically in there to cover IR35.

Anyway, to update, I set out my argument as above and they have removed the clause. I start next week.

[Lance]

Hi all, my first post!

Was there anymore movement on this? I find myself in exactly the same position - a private company who have inserted a clause stating that I am responsible for any tax liabilities they face.

Much like what people are saying here, I baulked at it for a few reasons;

1) It is simply not fair or equitable for me to be responsible financially for a determination that they make.
2) What impetus is there for them to counter any challenge to the status should it arise if they won't be hit in the pocket?
3) Their risk appetite in financial terms should be far greater than mine as a one person directorship.
4) It's unlikely I can insure against it.
5) It simply isn't how these things should work when we have carried that burden for years.

Now, I'm am not overly worried about my status under this contract - otherwise I wouldn't look to take it on ahead of April. Similarly they say they have done all checks and are confident. When I mentioned they should back their confidence and remove the clause I was met with "We just can't be seen to have a determination go against us."

I pointed out that the determination would still go against them in any event, they would just look to recover from me, to which they didn't have much response other than "We need the clause."

In addition, they said they were willing to pay a higher day rate for me to work 'inside', which seems to negate even the financial risk argument for them.

Now I wasn't even planning on going back to work just yet, so I'm leaning towards letting it go, but they are adamant that these clauses are standard and you will find them everywhere from here on.

I'm just glad I found this thread because I thought I was going mad...

a clause to transfer a statutory obligation is almost certainly not going to hold up in court.
If they issue an SDS with an outside determination, and an outside contract, and you stick to the terms of the contract, then you're good. If they get found, or accused, by HMRC to have issued an incorrect determination it's their liability in legislation. That legislation trumps that clause.

Clauses like that predate the IR35 changes that came to the public sector. It's just agency arse covering against you failing to pay your tax.

CAVEAT: I'm not a lawyer & I've not read your clause.

[Stooza]

Hi all, my first post!

Was there anymore movement on this? I find myself in exactly the same position - a private company who have inserted a clause stating that I am responsible for any tax liabilities they face.

Much like what people are saying here, I baulked at it for a few reasons;

1) It is simply not fair or equitable for me to be responsible financially for a determination that they make.
2) What impetus is there for them to counter any challenge to the status should it arise if they won't be hit in the pocket?
3) Their risk appetite in financial terms should be far greater than mine as a one person directorship.
4) It's unlikely I can insure against it.
5) It simply isn't how these things should work when we have carried that burden for years.

Now, I'm am not overly worried about my status under this contract - otherwise I wouldn't look to take it on ahead of April. Similarly they say they have done all checks and are confident. When I mentioned they should back their confidence and remove the clause I was met with "We just can't be seen to have a determination go against us."

I pointed out that the determination would still go against them in any event, they would just look to recover from me, to which they didn't have much response other than "We need the clause."

In addition, they said they were willing to pay a higher day rate for me to work 'inside', which seems to negate even the financial risk argument for them.

Now I wasn't even planning on going back to work just yet, so I'm leaning towards letting it go, but they are adamant that these clauses are standard and you will find them everywhere from here on.

I'm just glad I found this thread because I thought I was going mad...

[1manshow]

Yes I realise that I could walk away but there remains the problem of the contract clause that passes through the agency's liability for additional taxes and penalties on to me, which I am assuming would be retrospectively applied to the whole contract so far. That's the part I am trying to insure against. I have confirmed with QDOS that this clause is untested in law and that their insurance would not cover it.

Even if you agreed to them, it seems that it might not be enforceable in a court of law - can’t see them winning a case when it’s clearly evident that they are trying to circumvent the law that purposely has put the burden of IR35 to them back to the contractor - as then everyone could do that and you’re back to square one which makes a mockery of the change which was designed to make clients take ir35 seriously rather than ignore it as burden lied with contractors.

[Fraidycat]

Yes I realise that I could walk away but there remains the problem of the contract clause that passes through the agency's liability for additional taxes and penalties on to me, which I am assuming would be retrospectively applied to the whole contract so far. That's the part I am trying to insure against. I have confirmed with QDOS that this clause is untested in law and that their insurance would not cover it.

Worst case agent could sue your ltd company, but if there is no money in there. They cant get blood out of a stone.

[Lance]

But what if the agent is one of those MSC-set-ups, where your deemed outside contract is with them, and they have a milestone delivery contract with the pub sec end client?
Where does the liability sit then?

then ask for an SDS. If it comes from the agency rather than the client you know it's dodgy.
If it comes from the client.. crack on.

[malvolio]

Yes I realise that I could walk away but there remains the problem of the contract clause that passes through the agency's liability for additional taxes and penalties on to me, which I am assuming would be retrospectively applied to the whole contract so far. That's the part I am trying to insure against. I have confirmed with QDOS that this clause is untested in law and that their insurance would not cover it.

Under section 10 rules (the new version of IR35 that the PS are already using) the liability resets with the client or the paying agency. It does not and will not rest with you. If the gig moves back inside IR35 - which is unlikely since the client presumably understands the rules properly - then it's their problem to pay the taxes that they should have been deducting from the beginning.

On that basis a clause transferring that liability to you is likely unenforceable, unless of course you agree to it happening. However they could then claim you had been overpaid and ask for the balance back. Which ends up with the same dilemma.

Personally I'd walk away, or at least call the agency's bluff. However I (and most everyone else on here) are not contract lawyers. I should get qualified advice from someone who understands the entirety of contracts

[SteelyDan]

but so what. It's public sector so their liability.
If they change the terms later on you can walk, or stay with impunity.

But what if the agent is one of those MSC-set-ups, where your deemed outside contract is with them, and they have a milestone delivery contract with the pub sec end client?
Where does the liability sit then?