Reply to: Consultancy MSA and IR35 Red Flags

[jamesbrown]

sorry.... What bit binds you as an individual? I cannot see that in the information you provided.

I don't see much point in litigating this. The OP is talking about a contract review from QDOS. If they suggested an edit, you can be pretty sure they are correct and it is pointless second-guessing it here.

[Lance]

They want it to be removed because it binds me as an individual to the contract and states that I as the director or a substitute director would have to carry out the work, implying a personal service. No sign of an SDS yet either and I have requested this again.

sorry.... What bit binds you as an individual? I cannot see that in the information you provided.

[ziggystardust]

Have you understood that correctly?
that indemnity clause reads to me like something covered by PI insurance and unrelated to IR35.
ownership of the company is unrelated to IR35.

so I don’t understand why QDOS would want either removed from an IR35 perspective.

They want it to be removed because it binds me as an individual to the contract and states that I as the director or a substitute director would have to carry out the work, implying a personal service. No sign of an SDS yet either and I have requested this again.

[jamesbrown]

So would the following constitute as a claw back clause:
" I undertake to indemnify [named consultancy] on demand in respect of any loss, liability, costs
(including reasonable legal costs), damages or expenses it [named consultancy] may suffer as a result of any failure by
[my company] to perform obligations in the Agreement (MSA)".

No. It's an indemnity clause in relation to losses incurred by the consultancy caused by your failure to deliver the services, not tax losses. If there were to be an obligation elsewhere in the MSA to make good any tax loss, that would be the claw back clause in itself.

[Lance]

So would the following constitute as a claw back clause:
" I undertake to indemnify [named consultancy] on demand in respect of any loss, liability, costs
(including reasonable legal costs), damages or expenses it [named consultancy] may suffer as a result of any failure by
[my company] to perform obligations in the Agreement (MSA)".

It also mentions that I or other members of my family should own all the shares in the company and if that situation changes that I should inform the consultancy! Yet they are trying to say it's Outside. This is all in the side document additional to the NSA that Qdos are saying I've should get the consultancy to scrap.

Have you understood that correctly?
that indemnity clause reads to me like something covered by PI insurance and unrelated to IR35.
ownership of the company is unrelated to IR35.

so I don’t understand why QDOS would want either removed from an IR35 perspective.

[ziggystardust]

So would the following constitute as a claw back clause:
" I undertake to indemnify [named consultancy] on demand in respect of any loss, liability, costs
(including reasonable legal costs), damages or expenses it [named consultancy] may suffer as a result of any failure by
[my company] to perform obligations in the Agreement (MSA)".

It also mentions that I or other members of my family should own all the shares in the company and if that situation changes that I should inform the consultancy! Yet they are trying to say it's Outside. This is all in the side document additional to the NSA that Qdos are saying I've should get the consultancy to scrap.

[eek]

Responsibility lies with the end client, liability with the Fee Payer but, yes, if you received an SDS that indicates outside, the liability isn’t yours, in principle, for as long as the SDS remains. In practice, it might be yours. Read this:

https://forums.contractoruk.com/acco...contracts.html

And in reality - it's in everyone else's interests that it becomes your issue.

You can see the reason why when you look at what happened to DWP - their fine was so high because HMRC treated the invalid Outside IR35 contracts as post tax income. Which meant that DWP were being asked to pay the NI and tax that resulted in a take home pay of £2000 a week rather than the take home pay required on a gross income of £1700 (rough calculation of employment costs).

Which means without a clawback clause an agency / end client can be looking at a bill of 100% of assignment fee or £0 with one.

[jamesbrown]

... but is it not the case that liability rests with the end client? Or is that only if the SDS is outside? Either way regardless, what you're saying is that sooner or later I will have tax etc deducted so should I be telling consultancy that the contract has failed the assessment and ask for a higher rate? I jumped the gun and made the mistake of setting up a company in readiness for this contract so have really landed myself in it now

Responsibility lies with the end client, liability with the Fee Payer but, yes, if you received an SDS that indicates outside, the liability isn’t yours, in principle, for as long as the SDS remains. In practice, it might be yours. Read this:

https://forums.contractoruk.com/acco...contracts.html

[ziggystardust]

However, if the contract/WPs were assessed as inside, that is a problem…

... but is it not the case that liability rests with the end client? Or is that only if the SDS is outside? Either way regardless, what you're saying is that sooner or later I will have tax etc deducted so should I be telling consultancy that the contract has failed the assessment and ask for a higher rate? I jumped the gun and made the mistake of setting up a company in readiness for this contract so have really landed myself in it now

[jamesbrown]

Oh, you’ve probably been led up the garden path.

There’s nothing wrong with an MSA, which is quite often the basis for specific Task Orders/SoW agreements that follow. However, if the contract/WPs were assessed as inside, that is a problem…

[ziggystardust]

Still no reply from the consultancy following my request to see a SDS 2 days ago, when he's replied very quickly to my other emails. I'm a bit confused as the MSA sent is just one between myself and the consultancy but no mention of projects, notice period etc. Should I be issued with a separate contract as well?

Also, QDOS assessed the MSA and accompanying letter and came back with a determination of Inside, citing that I'd need the consultancy to ditch the latter document to at least bring it in to line, as all the clauses refer to any personnel of my company in a way that would be working on their behalf as a consultant. With the delay in response on the SDS I am starting to get very concerned that someone has not been truthful...

[Lance]

The consultancy is not classed as small as, after checking, their annual turnover is £13 million and number of employees is 100. I have been told that any of the projects I will be working on will involve working alongside consultants which are one of the "Big Four." The end client is a large company. I requested an SDS yesterday so will see what they come back with.

you should make sure you get an SDS for each work package/SOW you do. They could be different depending on the exact arrangement with the end client or larger consultancy. The MSA will not require an SDS as it won't be for a specific package.

[eek]

What do you mean by "claw back clauses"?

A claw back clause says something along the lines of if the contract is deemed (in the future, by say HMRC) to have been inside your company will need to repay the money so that the appropriate amount of PAYE taxes can be paid.

as you can see the consequences are nasty, probably hard to avoid and could be triggered by things utterly outside your control. Say by HMRC picking on a very different contractor at end client and then say that all 1000 other contractors at end client should be regarded as having been inside.

*note me and jamesbrown may be regarded as utterly cynical here but we are talking about HMRC and agents who don’t like risk nor losing money.

[ziggystardust]

The consultancy is not classed as small as, after checking, their annual turnover is £13 million and number of employees is 100. I have been told that any of the projects I will be working on will involve working alongside consultants which are one of the "Big Four." The end client is a large company. I requested an SDS yesterday so will see what they come back with.

[ziggystardust]

Make sure you get the SDS from the end client and, more importantly, that there are no claw back clauses in the MSA.

What do you mean by "claw back clauses"?