Possible IR35 Red Flag?

[Omz]

Hello All

I am quite new to the contracting scene and have been warned numerous times about IR35 compliance. My wife (coaching/training/consultant) is looking over a new contract and we are not sure whether it's worth getting an IR35 review done as there is one clause in particular that jumps out:

9. STATUS AND TAX

9.1
It is hereby declared that it is the intention of both parties that you shall have the status of a self employed person and shall not be entitled to any pension, or any fringe benefits from the Company. It is agreed that you shall be responsible for all income tax liabilities and National Insurance or similar contributions in respect of your fees.

9.2
You agree to meet the costs of all claims that may be made by the relevant authorities against us in respect of income tax or National Insurance or similar contributions relating to your services.

What concerns me is the "any claims made by relevant authorities" and the "similar contributions" lines as this seems quite vague.

Any advice greatly appreciated!

 

[Scalloway]

I would say it is typical lawyer speak. They don't want to tie things down too much in case another HMRC levy starts up.

 

[mattk]

Is this role deemed inside or outside IR35?

Currently, you are responsible for determining your own IR35 status. Therefore it seems fair you are held responsible for your own tax situation.

As of April 2021 the end client is responsible for determining your IR35 status.

When does this contract run until? I would expect a new contract post-April 21 with that clause removed or more likely the client refusing to engage with you directly at all and requiring you to either go on their payroll (as a zero rights employee) or via an umbrella company.

 

[paulears]

What would concern me is that if hmrc determine you were paye status then you would have agreed to pay your tax AND theirs if I’m reading it right?

 

[ethical PR]

Hello All

I am quite new to the contracting scene and have been warned numerous times about IR35 compliance. My wife (coaching/training/consultant) is looking over a new contract and we are not sure whether it's worth getting an IR35 review done as there is one clause in particular that jumps out:

9. STATUS AND TAX

9.1
It is hereby declared that it is the intention of both parties that you shall have the status of a self employed person and shall not be entitled to any pension, or any fringe benefits from the Company. It is agreed that you shall be responsible for all income tax liabilities and National Insurance or similar contributions in respect of your fees.

9.2
You agree to meet the costs of all claims that may be made by the relevant authorities against us in respect of income tax or National Insurance or similar contributions relating to your services.

What concerns me is the "any claims made by relevant authorities" and the "similar contributions" lines as this seems quite vague.

Any advice greatly appreciated!

Have you checked on HMRC to see if you see whether you would be considered as self-employed or employed?

 

[Rebecca_J_T]

It’s quite a standard clause. It just means that if an authority (usually HMRC as it stands) determines that your IR35 status has been incorrectly determined or you have otherwise been under-contributing to a national scheme, and if the authority then makes a claim against the Company to recoup losses or issues a penalty, you rather than the Company will be liable for that.

I hope that helps.

 

[obscure]

What would concern me is that if hmrc determine you were paye status then you would have agreed to pay your tax AND theirs if I’m reading it right?

Yes this is exactly what it translates to. The OP would be made to pay their own contribution and theirs... plus any costs/fine they incurred as a result.

 

[2020Lawyer2020]

Yes, it is in almost every consultancy contract I look at. It means as people say - if you are lying and pretending not to be an employee and HMRC order payment eg of employer national insurance you pay that not the "employer".

Are you a sole trader? IF35 only applies to limited companies although the basic tax laws about who is employee and who is not for tax purposes will apply to you even if a sole trader so some people use the term IR35 wrongly even with sole traders but they just mean tax law on who is an employee and who is not.

 

[Newchodge]

Yes, it is in almost every consultancy contract I look at. It means as people say - if you are lying and pretending not to be an employee and HMRC order payment eg of employer national insurance you pay that not the "employer".

Are you a sole trader? IF35 only applies to limited companies although the basic tax laws about who is employee and who is not for tax purposes will apply to you even if a sole trader so some people use the term IR35 wrongly even with sole traders but they just mean tax law on who is an employee and who is not.

But what if, as commonly happens, it is the employer who is lying and refusing to recognise that their employee is exactly that?

 

[Mr D]

But what if, as commonly happens, it is the employer who is lying and refusing to recognise that their employee is exactly that?

Then it appears they want the employee paying.

 

[Alan]

you shall have the status of a self employed person

IR35 does not apply to self employed persons, only to those employed via a limited company as a service company

 

[paulears]

Yes it does! It covers people being paid who are not on the payroll, so it covers clients, worker (contractors) and intermediaries. In practical terms, somebody who is self-employed (like me) is a contractor, and if you work through a service company, that company is the intermediary. HMRC sum it up like this.

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’.

 

[Rebecca_J_T]

Then it appears they want the employee paying.

In the public sector, we’ve seen HMRC holding the end client liable for income tax not paid by a contractor. This has been not owing to any incorrect IR35 determination but on the basis that having made the determination, “inadequate assurance” has been sought to ensure that the contractor where off-payroll is ultimately paying the correct income tax.

I understand some public sector organisations have resorted to these sorts of clauses for that reason.

 

[paulears]

Indeed - this is what scares so many - the concern that at some point HMRC decide the people were employees and demand tax and the employee AND employers NI, with the person long gone.