Personal services company? need help...

[northernladuk]

fyi. I've been paid a notice period on a contract, project finished early and they wanted the team off premises. So that was 3 weeks full pay upon them serving notice on the contract.

Even a 6 week, fixed term contract I worked (how could that be deemed "employment"?) had a notice period in the contract as per the client specification. Why then, are notice periods for permies?

Permies would quite rightly expect notice to be honoured and paid. We don't. If the client pays then great but if there is no work then they don't have to. Some clients seem to play nicely and lucky they seem to be in the majority for the moment but if they want to play hardball they can if they want.

[Wanderer]

Permies would quite rightly expect notice to be honoured and paid. We don't.

I understand points of view like yours but I keep coming back to the question which I've never had a satisfactory answer to:

Why is there a notice period in the contract if there is no expectation that the client will honour it?

If the client and the contractor form a relationship where a contract can be terminated without any notice then that's absolutely fine!

What I don't get is why don't they just write it in the contract that the client can terminate at any time without giving notice rather than this silly "notice period" that the wise heads here say "means nothing"! Seriously, why on earth do they put a notice period in the contract if the understanding is that they can terminate a contractor without notice and not pay the notice period. I really don't get it.

A suspicious person could think that agencies like to perpetuate the perception of an unpaid notice period but then enforce the notice against the client and quietly pocket the money....

[northernladuk]

Probably because we still insist on it because we think they mean something. Remember QDOS say that not having one would be best. I would guess as we are in business we should be able to negotiate our way out of any situation as part of 'doing business'. I am sure most clients would still be reasonable in the event of them not needing a contractor if it is in the contract or not. If they wanted the stop paying the contractor they already can. You could say then the notice period in contracts is the clients still seeing us as disguised permies and not a true businesses. The same could be said for contractors who insist on notice periods don't really view themselves as a proper business.

Contracting termination clauses that avoid IR35 risk

[northernladuk]

Although saying that, to keep the argument rolling QDOS say the following

Right of Dismissal
It is not normally the case that a self employed person could be dismissed other than if he
was in breach of the terms of his contract. An employee would have the right to be given
statutory notice of the termination of his employment. HMRC see notice periods as being
indicative of employment however reasonable notice periods are considered defendable.
If a contractor is not able to terminate their contract early, or has a notice period in
excess of one month, the contract will fall inside IR35.

So they are saying if there is no notice period they contract will be inside IR35??? Which kinda goes against what they say about no notice periods being preferred. Maybe they would then point that RoS is available which is a form of termination?? Christ knows what the reality is.

[Wanderer]

Although saying that, to keep the argument rolling QDOS say the following

That quote sounds completely and utterly wrong on so many levels.

[LisaContractorUmbrella]

HMRC's opinion:

ESM0546 - Guide to determining status: right to terminate a contract

A power to terminate an engagement, for a reason other than a serious breach of contract, by giving notice of a specified length, may be indicative of a contract of employment but is not conclusive. The power can be expressly stated in the contract or it can be implied.

In the case of Morren v Swinton & Pendlebury Borough Council [1965] 1WLR at p.582 Lord Parker C.J. said


"Apart from that, he was appointed by the respondents, they had the right to dismiss him, he was paid such matters as subsistence allowance, National Insurance contributions and holidays, and in addition there was provision for one month's notice. Pausing there, it seems to me that looked at on those facts, the only possible inference is that he was engaged under a contract of service."
Mr Justice Widgery and Mr Justice Marshall both agreed with Lord Parker's judgment.

However, in the later case of McManus v Griffiths (70TC218), Mr Justice Lightman says in relation to a three-month notice period in that case "I do not think it is indicative of either. I regard the provision as neutral." The case of Morren was not however cited in argument and was not referred to in the judgment.

Equally, the absence of such a power would not point conclusively towards self-employment. For example, where an engagement is for a specific piece of work, or a specified period of time, there is unlikely to be scope for dismissal by period of notice. The interviewer in the Market Investigation case (see ESM7040) was found to be an employee. The absence of a right of dismissal other than for serious breach did not mean that the worker was necessarily self-employed. Cooke J remarked:


'So far as concerns dismissal irrespective of breach, it is of course clear that the interviewer in this case could not, in the absence of a breach, be dismissed in the middle of an assignment. But there is nothing in this which is inconsistent with the contract being a contract of service. It is quite common for contracts of service to be entered into for fixed periods with no provision, express or implied, for dismissal during the specified period.'

Not sure it helps

[Wanderer]

Not sure it helps

Well it does in that it cites strong references and appears to show the notice period is a neutral pointer and can be disregarded.

[northernladuk]

Well it does in that it cites strong references and appears to show the notice period is a neutral pointer and can be disregarded.

I wouldn't be so comfortable using this case though. Have a look at the rest of the situation in this case here. For a start it was in 1965 and also....

Case Law: Morren v Swinton and Pendlebury Borough Council

Mr Morren applied for the post and was appointed by the Council who also:

had the right to dismiss him
paid his salary, travel and subsistence costs and NICs
determined his holiday entitlement via the “Terms of Employment”.
But, importantly, the Council was not responsible for directing or controlling Mr Morren’s work. This was the firm’s responsibility

Decision
Mr Morren was employed under a contract of service.

The other considerations e.g. right of dismissal, holiday pay and notice period, led him to the conclusion that Mr Morren was an employee. The power of selection was delegated to the consulting engineers but this did not alter the fact that the Council engaged him.

I don't think a case involving an employee is going to have much impact on us TBH.......

[Blackdog]

Although saying that, to keep the argument rolling QDOS say the following



So they are saying if there is no notice period they contract will be inside IR35??? Which kinda goes against what they say about no notice periods being preferred. Maybe they would then point that RoS is available which is a form of termination?? Christ knows what the reality is.

I understand your frustration; I've been pondering this myself.

Have a look at the HMRC vs MBF case where Airbus was the end client (I think there's a piece about it on the CUK site somewhere), and then have another read of the two Qdos items you've quoted.

Qdos has muddied the waters by mentioning notice periods but not specifying whose notice periods they are referring to, i.e. the contrator's or the end client's.

With that in mind, I believe this is what they mean in order for you to have a pointer outside of IR35 and a case for passing the MOO test (with respect to notice periods):

Written into the contract:

1. The end user/client should always have the right to terminate without notice

2. The contractor/LTD should always have a right to terminate 'mid-contract', which I take to mean a notice period on your side of up to 4 weeks (more than 4 weeks seems to be deemed an unreasonable length of time by HMRC and a pointer to being inside IR35).

It would be good if someone from Qdos could post on here to clarify.

[Wanderer]

It would be good if someone from Qdos could post on here to clarify.

Along with a reference to case law rather than just an opinion too....