Reply to: Confirmation of Arrangements letter (sample feedback)

[jamesbrown]

I am in the process of getting a CofA letter signed off by the client.

They are not adverse to it but are thinking more along the lines of - what do I as the client get out of this.

I took the approach that if there were to be an investigation then there may be a chance that the client may have to attend tribunals / meetings with HMRC etc. So the CofA could potentially avoid this, saving them time and money.

Their response was that they have no employment obligations and no risk of enquiry from HMRC. The risk of IR35 lies solely with the contractors. Which is all true of course. So in their opinion it does not give them any protections etc.

Are there any other points I could make to highlight that it may be in their interest (and not just mine) to get this CofA in place?

Which template are you using? The template from B&C comes with a fairly lengthy preamble w/ justification IIRC. The one from QDOS has a short justification. Anyway, it isn't a legal form, so it can't hurt them, beyond the time taken to complete the form. You should be able to persuade them (if nothing else, presumably they don't want you to look elsewhere?) Make sure you get it completed by someone familiar with your working practices and not some random HR person.

[Cosmokramer]

I am in the process of getting a CofA letter signed off by the client.

They are not adverse to it but are thinking more along the lines of - what do I as the client get out of this.

I took the approach that if there were to be an investigation then there may be a chance that the client may have to attend tribunals / meetings with HMRC etc. So the CofA could potentially avoid this, saving them time and money.

Their response was that they have no employment obligations and no risk of enquiry from HMRC. The risk of IR35 lies solely with the contractors. Which is all true of course. So in their opinion it does not give them any protections etc.

Are there any other points I could make to highlight that it may be in their interest (and not just mine) to get this CofA in place?

[dagenheis]

good stuff, thanks Gemma. Your response clarified the key concern I had as I know that my client contact (responsible for my contract) is thinking to change jobs ;-)

[Gemma at Qdos]

no problem at all

[northernladuk]

Interesting. Not what I thought so I stand corrected. Thanks Gemma.

[Gemma at Qdos]

We recommend going to whoever you directly interact with (which is probably not HR) and has the most knowledge on the way that you work. This is generally the person that you liaise with and/or report to. "Line Manager" isn't a very IR35 friendly term so I'm avoiding it

The confirmation of arrangements form is designed to determine the reality of your working relationship with your client, and should not be confused with confirming the contract. It is important to have it confirmed by somebody who actually works with you and can confirm your situation as opposed to someone in HR, who yes will understand the contract, but will unlikely have any real understanding of how you actually work and your real working practices. HR may often, for example, decide that you do not have autonomy over your method of work etc because they often have little understanding of how contractors operate (this is of course a generalisation).
The confirmation of arrangements is still useful even if said person leaves the business, as it will have been completed by somebody who worked with you at the time. This is part of its purpose as if you were investigated by HMRC and the person you reported to had left, who is going to confirm your arrangements? HR. Again, they will understand the contract but they may not understand how you really work or understand the questions in relation to IR35. It is actually in this situation where a lot of problems for the contractor arise in an enquiry.

Hope that helps

[northernladuk]

@northernladuk
I am reviewing this with the line manager who is also my client contact on the contract. I am sure it will be a dead duck if HR is involved but the idea is to confirm the working practices with someone who is directly involved on the services provided.

As it's not a legally binding document, I guess that's all I can do for now to record some details of arrangements. The line manager may leave the company in 6 months or he might take a diffeent stance if the situation arises.

I don't think your line manager is the right person though. I don't think he will have the authority to confirm those arrangements I wouldn't think. It isn't legally binding but it is a very important document should you get investigated. I imagine if they look at the CoA and manage to pick a hole in it, say the RoS, then it leaves your contract wide open for attack. If you don't get the right person to sign it and can make it stick in an investigation I think it could cause you more problems than it solves. It should be signed by someone that reflects the company approach to your contract. Your comment about the manager leaving is a prime example of why I don't think he is the guy. He is giving a personal opinion.

I would be interested to see if QDOS respond with who they advise and their thoughts on getting the wrong people to sign it.

[dagenheis]

.

dagenheis, I couldn't see any other red flags no. With regards to PI, there is not always a requirement in the contract as there is no legal requirement to hold the insurance, but remember that the insurance bolsters your IR35 perception (it gives you 2 points in HMRC's Business Entity Test) showing you have financial risk. It can also help with getting contracts if you already have it. For example, a client has the choice of two contractors of equal worth, but only one already has the required insurance to undertake the contract. Who do you think they will choose?

Remember that the confirmation of arrangements is not a legally binding document but is there to assist you with proving your working practices should the need ever arise.

I agree, PI can used as an indicator to demonstrate that Ltdco is managed as a business to mitigate financial risk so it's goot to keep the cover. However, I don't think its a blocker to bag a contract as it's fairly quick to find PI cover but it would be irrelevant when LtdCo are recommended to have it for IR35 reasons.
BTW, my client changed his mind about the defective work bit and prefers to answer this as 'No' as they would cancel the contract under "incompetence clause".
Cheers!

@northernladuk
I am reviewing this with the line manager who is also my client contact on the contract. I am sure it will be a dead duck if HR is involved but the idea is to confirm the working practices with someone who is directly involved on the services provided.

As it's not a legally binding document, I guess that's all I can do for now to record some details of arrangements. The line manager may leave the company in 6 months or he might take a diffeent stance if the situation arises.

[GB9]

The difference between the two is not overly clear cut. From an IR35 perspective, with substitution it is still your company which is contracted to do the work and your company is still responsible for the work carried out. With subcontracting, you effectively pass on that responsibility to the subcontractor and they are responsible for the work carried out.

May I introduce you to BP versus the US Government and responsibilities. Its the same here BTW.

[Gemma at Qdos]

The difference between the two is not overly clear cut. From an IR35 perspective, with substitution it is still your company which is contracted to do the work and your company is still responsible for the work carried out. With subcontracting, you effectively pass on that responsibility to the subcontractor and they are responsible for the work carried out. Subcontracting can indeed hold relevance to your IR35 status depending on what the subcontractor was doing and level of remuneration.

dagenheis, I couldn't see any other red flags no. With regards to PI, there is not always a requirement in the contract as there is no legal requirement to hold the insurance, but remember that the insurance bolsters your IR35 perception (it gives you 2 points in HMRC's Business Entity Test) showing you have financial risk. It can also help with getting contracts if you already have it. For example, a client has the choice of two contractors of equal worth, but only one already has the required insurance to undertake the contract. Who do you think they will choose?

Remember that the confirmation of arrangements is not a legally binding document but is there to assist you with proving your working practices should the need ever arise.

[northernladuk]

Don't forget...... One of the most important things about getting this signed is getting the right person to sign it. HR bod signs it and stands up in court and says he doesn't know about the answers to some of the questions then the whole thing falls apart. Line manager stands up and says I guess it was ok but I don't handle contracts then the same thing.

[dagenheis]

That one question alone will not put you inside IR35 and is a defendable point as they have agreed in the question about rectifying your work at your own expense. If you hold Professional Indemnity insurance as well, this will demonstrate that you take financial risk as a company.

Hope this helps

Gemma, it's interesting that you mention PI as I asked the same question whether there was a requirement for minimum PI as I already had a cover in place. The answer is that there is no mandatory requirement as I am not mission critical systems. The similar response was given by the agency. However, I do understand that PI indicates the ability to handle financial risks.

The client also mentioned that there hasn't been an instance in the past when they had to ask a contractor to fix the defective work at own expense as it will be the extreme situation where they will prefer to cancel the contact if the contract does not possess the appropriate skills.

I suppose there aren't any red flags on rest of the responses I mentioned above?

Fingers crossed, I hope HR will not come into the picture to get this signed by the client contact :-)

Cheers.

[jamesbrown]

The above highlights the confusion. Unless you are going to get someone PAYE onto your company books, the only other way I can think of is getting in another contractor that would quite possibly be working through their own Ltd. company i.e. your company would be sub-contracting to another company

e.g. jamesbrown ltd has the contract but needs to have a 3 month break and looks for a substitute

gemma ltd is a perfect fit and available so jamesbrown ltd provides gemma ltd with a 3 month contract to deliver work whilst jamesbrown has a break

You have substituted yourself whilst also sub-contracting.....what is the difference?

There's only so many ways to express this, I guess..... The important point with substitution is that YourCo is sending someone to do the work that you would otherwise have done and then invoicing as normal for that work. If the client is arranging any of this or the payment is not going via YourCo, it is not a substitution, it is a change of supplier. If the contract allows for substitution, there's no problem for you to acquire someone to work in this role in whatever way you deem fit (assuming it is not unreasonably fettered), but it remains critically important that YourCo is still the supplier (and YourCo's relationship with the other supplier is incidental). To the client, the substitute is simply acting on behalf of YourCo as the supplier. Subcontracting and assignment are more general concepts that allow for services to be carried our by another supplier. Perhaps try to view this the other way around. If you can understand that subcontracting may take place without substitution (e.g. because it's a separate piece of work, invoiced by another supplier), it follows that the contract may be limited to substitution.

[GB9]

The substitute does not have to be employed by you at all times, but will have to be employed by your company for the purpose of the substitution.

The right to subcontract is different as this displays the right for a company to contract a different company, i.e passing on the work to another company which was not contracted.

The above highlights the confusion. Unless you are going to get someone PAYE onto your company books, the only other way I can think of is getting in another contractor that would quite possibly be working through their own Ltd. company i.e. your company would be sub-contracting to another company

e.g. jamesbrown ltd has the contract but needs to have a 3 month break and looks for a substitute

gemma ltd is a perfect fit and available so jamesbrown ltd provides gemma ltd with a 3 month contract to deliver work whilst jamesbrown has a break

You have substituted yourself whilst also sub-contracting.....what is the difference?

[Gemma at Qdos]

That's exactly right jamesbrown. As a limited company contractor, you should be able to substitute yourself (but not your company) to carry out the services that your company has been contracted to do (and your company would be responsible for paying them), thus showing that it is not your personal service that is required but the service of your company, as it is your company that has been contracted, not you as a person. The substitute does not have to be employed by you at all times, but will have to be employed by your company for the purpose of the substitution.

The right to subcontract is different as this displays the right for a company to contract a different company, i.e passing on the work to another company which was not contracted. This is generally not accepted as the client has contracted your company and are generally not happy just being given another company to fulfill the work. The right to subcontract is not a golden point, it is more of an extra that improves upon the perception of your IR35 status but the right to substitute is the important one.