Contract clause where Company indemnifies agency against IR35 losses Contract clause where Company indemnifies agency against IR35 losses
Page 1 of 3 123 LastLast
Posts 1 to 10 of 24
  1. #1

    Nervous Newbie


    Join Date
    Jan 2019
    Posts
    2

    Default Contract clause where Company indemnifies agency against IR35 losses

    Hello,

    I am the director of my own business providing specialist IT services. The location where the services are carried out and the way in which they are carried out is not determined by the agency or the client.

    The agency contract which I am being asked to sign includes the following paragraph:

    "The Company (i.e. my company) shall indemnify and keep indemnified the Employment Business (i.e. agency) and the Client against any Losses suffered or incurred by the Employment Business or the Client by reason of any proceedings, claims or demands by any third party (including specifically, but without limitation, HM Revenue and Customs and any successor, equivalent or related body) pursuant to the IR35 Legislation, ITEPA or the NICs Legislation and/or any supporting or consequential secondary legislation relating thereto)."

    I challenged this as being unreasonable. The response was
    "It is the Company who engages or employs the Contractor and/or any Substitute and make any necessary payments to them, any claim arising out of such instances is the responsibility of the Company"

    What is the view on the level of risk that I expose my company to by accepting this term and signing the contract?

    Thank you,
    Mike.

  2. #2

    My post count is Majestic

    northernladuk's Avatar
    Join Date
    Mar 2009
    Posts
    40,821

    Default

    Get it checked by someone like QDOS or Baur and Cottrell and see what they say.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

  3. #3

    Super poster

    Lance's Avatar
    Join Date
    Sep 2013
    Location
    home
    Posts
    4,257

    Default

    it's just to cover the agency and the client from having to pay any tax that you don't pay.

    I'd say that it's a pretty paranoid clause as it's never going to be their debt anyway under current legislation. Unless they're public sector in which case it's more complex but if you're outside IR35, genuinely, then it's still your debt (and even if you should be inside then it's their debt no matter what that clause says - it could be that they want to transfer their ballsed up outside determination to you if they get it wrong though.)


    It's good practice is to get the contract reviewed though. Not least is there's another few pages where you might have missed something more fundamental.
    See You Next Tuesday

  4. #4

    Nervous Newbie


    Join Date
    Jan 2019
    Posts
    2

    Default

    Thanks all, yes, will seek professional advice, when they return from hols.

  5. #5

    Nervous Newbie


    Join Date
    Aug 2007
    Location
    London
    Posts
    7

    Default Same contract clause but public sector role OUTSIDE IR35 ...

    Quote Originally Posted by Mike7b0 View Post
    Thanks all, yes, will seek professional advice, when they return from hols.
    What happened with this? I've just been offered a new contract in the public sector but OUTSIDE IR35 and have the same clause in contract ... currently having it checked by QDOS and waiting for a call back from the IPSE legal helpline to see what they suggest and if it would be legally binding but wondered if you had any luck in getting the clause removed?

  6. #6

    Fingers like lightning


    Join Date
    Jul 2005
    Posts
    638

    Default

    Chaps, could someone confirm what this clause is meaning.

    (I am not up on legalese)

    Is it essentially saying that, The contract is deeming it is an Outside IR35 gig, and that if down the road, it is later deemed to be Inside IR35, that the tax and NI should come out of the contractor's pocket?

  7. #7

    Nervous Newbie


    Join Date
    Aug 2007
    Location
    London
    Posts
    7

    Default

    Quote Originally Posted by simes View Post
    Chaps, could someone confirm what this clause is meaning.

    (I am not up on legalese)

    Is it essentially saying that, The contract is deeming it is an Outside IR35 gig, and that if down the road, it is later deemed to be Inside IR35, that the tax and NI should come out of the contractor's pocket?

    I'm not up on legalese either but yes, that's how I interpreted it. In private sector I guess that makes sense.
    However, my understanding was that in the public sector, the agent/client decide the IR35 status and if they declare a role as outside IR35, they are responsible/have the risk if the role is then found to be inside and have to pay the associated costs. The clause then passes this onto the contractor which goes against the HMRC guidelines - they're putting all the risk back on the contractor who has no say in whether the role is in or out of IR35.

    The situation I have is that I've been offered public sector role that was originally going to be inside IR35 but they're now saying it's going to be outside IR35 and then they've stuck this clause in the proposed contract. IPSE legal helpline said the clause would be enforceable if I signed ... and I doubt the agent will remove the clause so I guess I need to assess how much of a risk this is likely to be. I'm currently in a contract but keen to get out and this new role sounds great (aside from the contract/IR35 part)



    I found another chat on the forums here https://www.contractoruk.com/forums/...ontract-2.html And an article here: Recruiters shift IR35 liability costs to contractors

  8. #8

    Fingers like lightning


    Join Date
    Jul 2005
    Posts
    638

    Default

    Quote Originally Posted by Sezzler View Post
    I'm not up on legalese either but yes, that's how I interpreted it. In private sector I guess that makes sense.

    However, my understanding was that in the public sector, the agent/client decide the IR35 status and if they declare a role as outside IR35, they are responsible/have the risk if the role is then found to be inside and have to pay the associated costs. The clause then passes this onto the contractor which goes against the HMRC guidelines - they're putting all the risk back on the contractor who has no say in whether the role is in or out of IR35.
    Ok, well if the wider forum users also agree with this interpretation, then I find this very interesting.

    In another thread back in April 2018, and in relation to when the Private Sector reform comes in from 2020, I actually proffered this contractual clause as something that could be used by the contractor to encourage an Outside IR35 decision;

    1. Prior to starting a contract, and
    2. Prior to any litigious clawback process for tax and NI which as yet, is not understood or considered.

    That this clause has now already been used by someone in a contract suggests that this may be a way through the 'post reform' environment to commence a contract with an Outside IR35 decision.

    From post 596 on this thread;
    https://www.contractoruk.com/forums/...03-act-20.html

    You will note that His Northern Trollness and Malvolio found my proposition silly...

  9. #9

    Super poster


    Join Date
    Apr 2015
    Posts
    2,483

    Default

    Quote Originally Posted by simes View Post
    Ok, well if the wider forum users also agree with this interpretation, then I find this very interesting.

    In another thread back in April 2018, and in relation to when the Private Sector reform comes in from 2020, I actually proffered this contractual clause as something that could be used by the contractor to encourage an Outside IR35 decision;

    1. Prior to starting a contract, and
    2. Prior to any litigious clawback process for tax and NI which as yet, is not understood or considered.

    That this clause has now already been used by someone in a contract suggests that this may be a way through the 'post reform' environment to commence a contract with an Outside IR35 decision.

    From post 596 on this thread;
    https://www.contractoruk.com/forums/...03-act-20.html

    You will note that His Northern Trollness and Malvolio found my proposition silly...
    Yes, this is what you were suggesting. When you apply 'opt out' to IR35, though, you give the entirely wrong impression, that somehow you can have it not apply.

    Very simply, you can't opt out of IR35. This is an attempt to contractually let the client/agent 'opt out' of their responsibility to administer it properly under the reforms, by pushing all the liability for that onto the contractor.

    It is probably not enforceable and HMRC will probably not accept this. The biggest point of the 'reforms' is to let HMRC stop chasing individual contractors (who often enough know how to win these cases or have engaged someone who knows how). And when they did beat a contractor, sometimes his company didn't have the funds, so then they had to pierce the corporate veil, which might be difficult if he'd had contract reviews and been careful with what he was about.

    They want to chase clients and win swathes of cases at a time, rather than fight them one at a time and lose half of them. And they want liability to be with the client / agent, who have deeper pockets and aren't going to disappear. So this clause is irrelevant as far as HMRC is concerned.

    It does mean that client/agency can try to recover losses from YourCo if they are held liable for failing to operate IR35 properly in your case. But if they are found to be negligent in their administration of IR35, it's hard to say whether they could then hold you liable for that. It would be an interesting case for sure. And should they be also able to recover costs they spent fighting the case? I think they'd have a hard one with that.

    And of course, if YourCo doesn't have money, or has been closed, they aren't going to get too far with a claim. You'd probably have to disclose it as a contingent liability if an investigation started before you started the process of closing your company, though.

  10. #10

    My post count is Majestic

    northernladuk's Avatar
    Join Date
    Mar 2009
    Posts
    40,821

    Default

    Quote Originally Posted by simes View Post
    Ok, well if the wider forum users also agree with this interpretation, then I find this very interesting.

    In another thread back in April 2018, and in relation to when the Private Sector reform comes in from 2020, I actually proffered this contractual clause as something that could be used by the contractor to encourage an Outside IR35 decision;

    1. Prior to starting a contract, and
    2. Prior to any litigious clawback process for tax and NI which as yet, is not understood or considered.

    That this clause has now already been used by someone in a contract suggests that this may be a way through the 'post reform' environment to commence a contract with an Outside IR35 decision.

    From post 596 on this thread;
    https://www.contractoruk.com/forums/...03-act-20.html

    You will note that His Northern Trollness and Malvolio found my proposition silly...
    And there is a very good reason for that. Note we aren't the only two.

    Here is the actual post in question.

    https://www.contractoruk.com/forums/...ml#post2544935

    You simply cannot Opt out of IR35. Period. Everyone in the chain should really know this else they are really failing in their due diligence around the contract and engagement. They also shouldn't be taking such a risk with untested and potentially very risky clauses in contracts. HMRC don't seem to know what they are doing most of the time with IR35 so clauses like this mean nothing. HMRC will continue to follow the chain as they expect to and the only way to even attempt to make your clause stick is a lot of very expensive court cases.. which won't happen as a clause like this cannot trump legislation. The client will either know this or won't want to go anywhere near a risk like this.

    And what if the contractor shuts up shop and can't won't pay? How would that make a client/agent feel any more comfortable.

    and so on and so on...
    Last edited by northernladuk; 30th April 2019 at 22:18.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

Tags for this Thread

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •