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supersteamer
13th October 2017, 07:08
Another contractor working on an outside of IR35 PS contract has a reporting warranty clause in her contract whereby she needs to notify the agency if she comes under SDC. She’s a bit worried by this as this is the haziest part of IR35 with confusing case law and guidance. She’s not sure she’ll judge this right and meet the reporting requirements although she does think that, as of now, she is not under SDC.

Could she be liable for damages to the agency if it is pursued for taxes if the contract is later deemed inside IR35 and she didn’t report she was under SDC. Would PI insurance cover this sort of claim?

What’s the panel’s view? How common is this? I don’t have this clause (although I was concerned about an indemnity- see earlier post - which covered similar territory). Is it fair? I can understand the reasoning but it does seem to be another attempt to transfer liability.

northernladuk
13th October 2017, 07:16
Does she have evidence from the PS in the form of the output from the ESS tool?

supersteamer
13th October 2017, 07:27
Yes, she does. CREST (or whatever they call it) says the contract is outside of IR35. The decision seems to be *mainly* based on ROS, not on lack of SDC. Obviously this would need to be invalid too for IR35 to apply.

northernladuk
13th October 2017, 07:51
Yes, she does. CREST (or whatever they call it) says the contract is outside of IR35. The decision seems to be *mainly* based on ROS, not on lack of SDC. Obviously this would need to be invalid too for IR35 to apply.

Never heard of CREST. It's the output from ESS tool you need.
I would be VERY nervous if RoS is the only thing putting me outside, and in PS org as well. In my experience they are the last people that would be happy with it on the ground.
I'm also pretty bemused how any PS body says no SDC either with the culture it the ones I've been in but that's another discussion.

TheFaQQer
13th October 2017, 08:00
Never heard of CREST. It's the output from ESS tool you need.

CEST is the new name for ESS.

TheFaQQer
13th October 2017, 08:03
Could she be liable for damages to the agency if it is pursued for taxes if the contract is later deemed inside IR35 and she didn’t report she was under SDC. Would PI insurance cover this sort of claim?

What’s the panel’s view? How common is this? I don’t have this clause (although I was concerned about an indemnity- see earlier post - which covered similar territory). Is it fair? I can understand the reasoning but it does seem to be another attempt to transfer liability.

What's the exact wording of the clause?

It looks like it's an attempt by the fee payer to try to push their liability back onto the contractor if the PSB has got the IR35 determination wrong, which is why she could (theoretically) be liable for taxes that the fee payer gets caught with. I am not convinced that an attempt to push the liability for those taxes onto the contractor would stand up in court, but it would take a good test case to settle the matter.

supersteamer
13th October 2017, 08:31
Never heard of CREST. It's the output from ESS tool you need.
I would be VERY nervous if RoS is the only thing putting me outside, and in PS org as well. In my experience they are the last people that would be happy with it on the ground.
I'm also pretty bemused how any PS body says no SDC either with the culture it the ones I've been in but that's another discussion.

She showed me the transcript from ESS / CREST and the PSB were not required to make a judgement on SDC. They were asked if the contractor was a manager (no) and if ROS existed (yes) and it then jumped straight to Outside IR35. No questions were asked about SDC nor MOO so we don’t know how the PSB would have answered them.

supersteamer
13th October 2017, 08:42
What's the exact wording of the clause?



Further to clause x.x, the Consultancy warrants that the Consultancy Staff do not work under (or are not subject to the right of) supervision, direction or control of any person as to the manner in which they provide the Consultancy Services. The Consultancy further warrants that it shall advise the Employment Business in writing immediately that the Consultancy Staff work under (or are subject to the right of) supervision, direction or control of any person.

northernladuk
13th October 2017, 08:45
What type of work she doing?

The above clause assumes the contractor has a very good understanding of a very grey area. If she's a PM she's going to fail it the minute the client offers her a new project but I bet she doesn't know that.

supersteamer
13th October 2017, 08:57
What type of work she doing?

The above clause assumes the contractor has a very good understanding of a very grey area. If she's a PM she's going to fail it the minute the client offers her a new project but I bet she doesn't know that.

She’s not a PM - she’s a developer working on a project to speed up some reporting jobs and knows not to stray off the reservation onto anything else.

northernladuk
13th October 2017, 08:59
She’s not a PM - she’s a developer working on a project to speed up some reporting jobs and knows not to stray off the reservation onto anything else.

Isn't that even worse as they could be directed which bit of work to do when and change that depending on how the project is going?

Didn't we have a debate around whether Agile is SDC?

TheFaQQer
13th October 2017, 09:02
Further to clause x.x, the Consultancy warrants that the Consultancy Staff do not work under (or are not subject to the right of) supervision, direction or control of any person as to the manner in which they provide the Consultancy Services. The Consultancy further warrants that it shall advise the Employment Business in writing immediately that the Consultancy Staff work under (or are subject to the right of) supervision, direction or control of any person.

I would feel very uncomfortable with that wording - because she may be working under SDC but not be aware of it.

Without knowing the rest of the contract it's impossible for anyone to really have an opinion about what the liabilities may be - I would see what any lawyers think about it. I'm presuming that it's too late to change it if she's accepted it, but even something along the lines of "The Consultancy further warrants that it shall advise the Employment Business in writing immediately that the Consultancy Staff become aware that they are working under (or are subject to the right of) supervision, direction or control of any person." which gives a bit more wriggle room.

As NLUK says, it's a grey area and trying to pin the blame on the consultancy to keep checking this would be something I'd be very wary of.

supersteamer
13th October 2017, 09:16
Thanks - does sound bad. And completely undermines the “clarity” that ESS was meant to bring to the process.

However - what’s the worst that can happen? If the agency claim for damages it can only be because the contract is inside IR35 (the agency will not suffer a loss if she does not report SDC but the contract is still outside of IR35). If inside then the ESS has been completed incorrectly (the ROS is not real) so she could raise a counter claim against the agency for wrongly informing her the contract was outside IR35 for this reason when she accepted it?

northernladuk
13th October 2017, 09:22
However - what’s the worst that can happen?

Her boss could murder her.

https://m.ranker.com/list/bosses-who-killed-their-employees/mike-rothschild

supersteamer
13th October 2017, 09:36
Her boss could murder her.

https://m.ranker.com/list/bosses-who-killed-their-employees/mike-rothschild

If she is outside IR35 that would have to be suicide as she’s her own boss. A bit of a drastic solution I would have thought but I will suggest it. Any other less desperate prospects for mitigating the risk given the contract is already in force? Would PI insurance cover a claim under this clause?

TheFaQQer
13th October 2017, 09:39
Thanks - does sound bad. And completely undermines the “clarity” that ESS was meant to bring to the process.

However - what’s the worst that can happen? If the agency claim for damages it can only be because the contract is inside IR35 (the agency will not suffer a loss if she does not report SDC but the contract is still outside of IR35). If inside then the ESS has been completed incorrectly (the ROS is not real) so she could raise a counter claim against the agency for wrongly informing her the contract was outside IR35 for this reason when she accepted it?

CEST being completed and giving an incorrect outside determination is something that agencies worry about - because they have no input into the process but still get hit with the costs if the PSB does it incorrectly.

My gut instinct on the contract is that this is an attempt to try to hedge their bets so that they can push some of that liability onto the client - because to fail IR35 you need to have failed all three pillars of employment, which means that you must have been subject to SDC. And if you didn't tell them that you were inside SDC, you've breached the contract.

But I'm failing to see how there could be a counterclaim because she isn't any worse off as a result of the contract being wrongly classified (PAYE and NI will be paid by the fee payer) - the only thing that makes her potentially worse off is because she breached the SDC clause, didn't tell the agency, and now they are suing for breach.

That said, I think that with the right legal representation the chances of liability being pushed from agency onto contractor for the PAYE and NI would be low.

gables
13th October 2017, 10:03
What type of work she doing?

The above clause assumes the contractor has a very good understanding of a very grey area. If she's a PM she's going to fail it the minute the client offers her a new project but I bet she doesn't know that.

Always bemuses me this (probably my lack of understanding), but how does being offered a new project (a) fail IR35 (b) constitute any part of SDC?

I ask, because 'offering' is just that i.e. not direction and control, and can therefore be refused.

northernladuk
13th October 2017, 10:10
Always bemuses me this (probably my lack of understanding), but how does being offered a new project (a) fail IR35 (b) constitute any part of SDC?

I ask, because 'offering' is just that i.e. not direction and control, and can therefore be refused.

OK. They are given a new project and they start work on it then.

That said the fact the client offers it means they see you under their Direction and Control so you fail. The working practices demonstrate SDC.

supersteamer
13th October 2017, 10:11
But I'm failing to see how there could be a counterclaim because she isn't any worse off as a result of the contract being wrongly classified (PAYE and NI will be paid by the fee payer) - the only thing that makes her potentially worse off is because she breached the SDC clause, didn't tell the agency, and now they are suing for breach.


This is exactly what she’s worried about. The agency could claim damages for all PAYE and NI despite the fact she’s already paid her taxes for the contract. Plus agency legal expenses and possibly interest. Could be very expensive.





That said, I think that with the right legal representation the chances of liability being pushed from agency onto contractor for the PAYE and NI would be low.

How would she get legal representation for this?

I know some insurance providers post on here - would they care to commit to covering claims against this clause on their PI or other insurance products? She’s s bit worried now so there may be business in it for you!

Incidentally I’ve asked around and similar clauses appear in a few people’s contracts -doesn’t seem to be isolated to one agency.

gables
13th October 2017, 10:42
OK. They are given a new project and they start work on it then.

That said the fact the client offers it means they see you under their Direction and Control so you fail. The working practices demonstrate SDC.

That is quite different (in bold).

I find it interesting on how we interpret things; to me an offer (which is a request to work on something else) does not indicate a client sees me under direction and control, in fact I'd argue the opposite. Because if it was D&C I'd be getting told what to work.

SueEllen
13th October 2017, 11:01
This is exactly what she’s worried about. The agency could claim damages for all PAYE and NI despite the fact she’s already paid her taxes for the contract. Plus agency legal expenses and possibly interest. Could be very expensive.
How would she get legal representation for this?



The trick is to get the contract reviewed before taking it by a solicitor and getting such terms removed. You need to get a solicitor who clearly understand PS IR35 and liability - look at the stories on the main website around this issue.

If she tries to shut the stable door after the horse has bolted e.g. get a solicitor afterwards it is a minimum 2x more expensive.

In regards to insurance there isn't any I can think off.

In regards to a developer being subject to SDC it really depends on how her work is organised and what parties she works with.

If for example she organises her own work, whether in an agile environment or not, due to having lots of experience and is the sole person in that position on the project then it is unlikely she is subject to SDC. (It also helps if she can work remotely.) If however she is working alongside someone with more experience in the same or similar role it can be argued she can be subject to SDC.

So the main trick in her case is to be proactive and self-organised e.g. the one who sorts out what is done when, who needs to be involved and to provide regular reports to the others on the project of her own back.

supersteamer
13th October 2017, 12:00
Yeah, stable door and horse. Under all the confusion surrounding the introduction of the new rules she had believed that she no longer had any liability for IR35 determination and that therefore an IR35 contract review was not necessary.

Anyway that’s a lesson learned.

Is there really no insurance for legal cover to defend this? There are lots of options for defending an IR35 decision against an HMRC claim in the private sector, but nothing to defend against an agency claim in the public sector?

northernladuk
13th October 2017, 12:14
That is quite different (in bold).

I find it interesting on how we interpret things; to me an offer (which is a request to work on something else) does not indicate a client sees me under direction and control, in fact I'd argue the opposite. Because if it was D&C I'd be getting told what to work.

OK, we are getting lost in semantics and words. If the client expects to give the PM new work then you could argue SDC exists, just not demonstrated. The PM obviously has the option to decline it but it's likely they'll be leaving soon. In a large majority of cases the PM's do multiple projects or what they are asked. If the clients expectation was to bring in a PM they can allocate work to as part of delivery team then they are will see the engagement as one with an element of SDC. Remember RoS does not have to be demonstrated to factor. If the client stands up in court and says 'Yes, we wanted a PM to supplement the team and carry out activities as we see fit' even if it didn't happen you've got a major problem.

If the PM has a poorly worded statement of work just listing skills and nothing about the actual projects then he has to be allocated work surely? SDC?

A lot depends on the contract and situation and is very grey. I am sure there could be a very good argument for SDC applying to all contractors and an equally good one it doesn't. Still won't help us know how HMRC want to apply it.

northernladuk
13th October 2017, 12:15
Yeah, stable door and horse. Under all the confusion surrounding the introduction of the new rules she had believed that she no longer had any liability for IR35 determination and that therefore an IR35 contract review was not necessary.

Anyway that’s a lesson learned.

Is there really no insurance for legal cover to defend this? There are lots of options for defending an IR35 decision against an HMRC claim in the private sector, but nothing to defend against an agency claim in the public sector?

How can you cost or design a solution to protect someone from something we don't actually know about or how much it will cost to defend? Too many unknowns for anyone to stick their neck out and offer it.

TheFaQQer
13th October 2017, 12:45
Is there really no insurance for legal cover to defend this? There are lots of options for defending an IR35 decision against an HMRC claim in the private sector, but nothing to defend against an agency claim in the public sector?

That's because IR35 has been around for a long time, and the insurance companies know what the exposure is likely to be plus what the workload of defending the case would be. That means that there can be a few people who are willing to provide cover / advice because they have a reasonable idea of their liability. Plus there hasn't been an IR35 tribunal in quite some time, so they have that advantage as well (more will be coming, I suspect).

That said if there is a situation where a case can be fought which would ultimately be in the best interests of contractors, then there is always a chance that a different kind of organisation might be prepared to take that fight on. For example, no insurance company would ever have spent over £1 million to take the Arctic case (or Jones v Garnett to give it its correct title) to the highest court in the land, but with good professional advice that was something that Geoff Jones won at every opportunity.

supersteamer
13th October 2017, 12:46
How can you cost or design a solution to protect someone from something we don't actually know about or how much it will cost to defend? Too many unknowns for anyone to stick their neck out and offer it.

That’s the bread and butter of actuaries and the insurance industry in general. If it can be done for HMRC IR35 challenges I don’t see why it couldn’t be done for Agency ones.

Yes, in an ideal world nobody would have these sort of clauses in their contracts. But given how risk averse agencies now are around IR35 I can see it being very difficult to have them removed for most contractors. Agencies can always just move on to the next guy.

supersteamer
13th October 2017, 12:53
Seems the upshot is don’t work in the public sector.

Inside IR35 and the tax burden is too high, especially if away from home.

Outside IR35 and you face uninsurable risks unless the agency (not the client) is so desperate to get you that they are willing to take all the risk themselves. Has anybody else got similar clauses successfully removed?

supersteamer
13th October 2017, 14:23
One more thought. If HMRC were to challenge a PS IR35 decision, who would they actually take to tribunal - the PSB, the agency or the PSC? If the PSC then presumably my fellow contractor’s IR35 tax enquiry insurance would kick in and she’d have the opportunity to refute the IR35 claim (based on all aspects, not just SDC).
Assuming she successfully rejects the challenge, then the agency would incur no costs and could therefore claim no damages from her.
So in a way she’s still protected by her IR35 tax enquiry insurance?

TheFaQQer
13th October 2017, 15:48
One more thought. If HMRC were to challenge a PS IR35 decision, who would they actually take to tribunal - the PSB, the agency or the PSC? If the PSC then presumably my fellow contractor’s IR35 tax enquiry insurance would kick in and she’d have the opportunity to refute the IR35 claim (based on all aspects, not just SDC).
Assuming she successfully rejects the challenge, then the agency would incur no costs and could therefore claim no damages from her.
So in a way she’s still protected by her IR35 tax enquiry insurance?

Nobody knows where an investigation might start - the rules are too new for HMRC to have opened (m)any investigations and unless people are posting about where it started, nobody knows who HMRC contact. But it's highly unlikely to be the agency, since they didn't make the determination.

They might ask the contractor (as they normally do for non-public sector contracts) as part of a routine enquiry, or they could start by asking each PSB what roles they have determined are outside IR35 and how did they make that determination. I would suspect that the latter could yield more targets quicker than the former, plus it's easier for HMRC to ask another public sector body how they came to a decision. If the case starts from that end, it won't get near the consultancy until the agency argues breach of contract.

Until it happens, nobody knows how HMRC, PSBs, agencies and the insurance providers will react - if the role is within the public sector, is there anything for an insurance provider to get involved with? The burden of paying the right level of taxation sits with the fee payer rather than the consultancy, after all.

This is all hypothetical - until HMRC start to bring cases, it's all speculation because nobody knows how it will work (including, I suspect, HMRC).