Reply to: Stupid Question - Outside Roles

[eek]

What would happen if a client is a 'small company' AND provides a SDS showing outside? If size of company is king, does it invalidate their own SDS leaving the contractor to have the liability?

Small Company (including the final end client if there is a consultancy involved) means you follow the old Chapter 8 rules rather than the new Chapter 10 rules.

[PerfectStorm]

What would happen if a client is a 'small company' AND provides a SDS showing outside? If size of company is king, does it invalidate their own SDS leaving the contractor to have the liability?

[eek]

Liable can be contractually as well as / instead of legally responsible

And note the incentive to pass things back to the contractor - the amount of tax paid is half what would otherwise be the case AND no-one else in the chain is paying a penny of it.

[hugebrain]

Go and read the full thread...

You read it. It says that the agency can deduct money if they are liable. But in this case it’s not the agency that are liable it’s someone further up the chain.

Anyway I’m not sure if these clauses are enforceable. Mine, for example, says I have to pay for any losses the agency suffer from IR35. Since the agency may well have hundreds or thousands of contractors working for them and the clause isn’t specific to my company, I could be on the hook for many millions of pounds. I’m not losing any sleep over it.

[northernladuk]

HMRC really don't care where the tax is coming from nor how much they receive they just want their money (oh and penalties on top).

And interest....

[eek]

A case would have HMRC involvement without doubt, if there is legislation regarding SDS issuing and a meager "claw-back clause" undermining it.

Think about it in the context of business tax capture, you can't litigate yourself out of obligations, no matter what clause you put in a B2B contract.

Why would it have HMRC's involvement.

HMRC or the end client has decided the contract is inside IR35.

All that is left is for the appropriate tax to be paid. And that depends on whether the £10,000 the contractor received per a month is the before or after tax figure.

With a clawback clause successfully implemented and the money recovered by the agency that £10,000 (times x months) is the pre tax figure.

if the money is not recovered by the agency - that £10,000 (times x months) is the post tax income and the agency needs to find the tax on that £10,000 (times x months) from within it's resources...

HMRC really don't care where the tax is coming from nor how much they receive they just want their money (oh and penalties on top).

[TheGreenBastard]

These clauses have nothing to do with HMRC - it's a commercial agreement between the agency and the contractor's limited company.

Whether IPSE has a large another fund to actually support a case is an interesting and separate question....

A case would have HMRC involvement without doubt, if there is legislation regarding SDS issuing and a meager "claw-back clause" undermining it.

Think about it in the context of business tax capture, you can't litigate yourself out of obligations, no matter what clause you put in a B2B contract.

[eek]

In light of the clauses hugebrain highlighted, I'd see HMRC having some trouble on their hands - orgs like IPSE should be chopping at the bit to represent such a case.

These clauses have nothing to do with HMRC - it's a commercial agreement between the agency and the contractor's limited company.

Whether IPSE has a large another fund to actually support a case is an interesting and separate question....

[TheGreenBastard]

Because there is zero legal precedence no one has a clue whether it will stand up in court.

However it's a B2B contract so I reckon it's at least a 60/40 chance that it would stand up in court....

What we do know is HMRC's advice is to inflect the pain back to the contractor even when it isn't their fault.

In light of the clauses hugebrain highlighted, I'd see HMRC having some trouble on their hands - orgs like IPSE should be chopping at the bit to represent such a case.

[eek]

I'm still struggling to see how you see this so clearly, that the claw back clause would even stand up in court, there's literally zero legal precedence.

Because there is zero legal precedence no one has a clue whether it will stand up in court.

However it's a B2B contract so I reckon it's at least a 60/40 chance that it would stand up in court....

What we do know is HMRC's advice is to inflect the pain back to the contractor even when it isn't their fault.

[TheGreenBastard]

Go and read the full thread...

The whole point of a clawback clause is that it allows them to legally go back (via a court if necessary) and ask you to repay everything that should have been paid in tax to HMRC - regardless of when it was paid... The reason a clawback clause exists isn't even for this type of scenario its for when HMRC visits an end client - finds a problem with a few workers and asks for all 1,000+ others to be treated the same way....

And the reason why an agency will want to collect the money off you is that if they recover the money they are paying tax using the money they paid you (50% goes to HMRC, 50% is paid back to you). Without that clawback the agency needs to pay HMRC roughly what it paid to you in the first place...

I'm still struggling to see how you see this so clearly, that the claw back clause would even stand up in court, there's literally zero legal precedence.

[eek]

But the thing above from Guy Incognito says that since the client has (I assume) paid the agency before issuing the SDS the Client is on the hook for any taxes and the agency won’t be able to claw anything back. So no problemo.

Go and read the full thread...

The whole point of a clawback clause is that it allows them to legally go back (via a court if necessary) and ask you to repay everything that should have been paid in tax to HMRC - regardless of when it was paid... The reason a clawback clause exists isn't even for this type of scenario its for when HMRC visits an end client - finds a problem with a few workers and asks for all 1,000+ others to be treated the same way....

And the reason why an agency will want to collect the money off you is that if they recover the money they are paying tax using the money they paid you (50% goes to HMRC, 50% is paid back to you). Without that clawback the agency needs to pay HMRC roughly what it paid to you in the first place...

[hugebrain]

Contract has a claw back clause within it….

and the thing is that this has gone on stupidly long - given how the law is set if a client is playing games the SDS would appear in month 3 or 4 and you would see the unpaid payments in month 3 and 4 disappear into the now required deemed payments.

But the thing above from Guy Incognito says that since the client has (I assume) paid the agency before issuing the SDS the Client is on the hook for any taxes and the agency won’t be able to claw anything back. So no problemo.

[eek]

So he got a nice contract but it might end after ten months? Sounds OK to me.

Client might be upset at having to pay some extra tax, but they can hardly blame him for that.

Contract has a claw back clause within it….

and the thing is that this has gone on stupidly long - given how the law is set if a client is playing games the SDS would appear in month 3 or 4 and you would see the unpaid payments in month 3 and 4 disappear into the now required deemed payments.

[hugebrain]

Go and read Late IR35 status determination - Contractor UK Bulletin Board to see how not having 1 before you begin working plays out...

So he got a nice contract but it might end after ten months? Sounds OK to me.

Client might be upset at having to pay some extra tax, but they can hardly blame him for that.