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Please advise, very worried about new clauses in DP's contract.(21 Posts)
Hallo there, I hope someone can help me, especially anyone with a background in employment or tax law.
My DP, who is a self-employed IT/Web contractor has just been asked by his main client to sign a new contract to which the two clauses below have been added. Can anyone tell me if these would actually be legally enforceable? Or if they're trying to get him to indemnify them against their own illegal actions?
"Tax indemnities: Each party is responsible for its own taxes and shall indemnify the other against the same as set out below:
1. The Contractor shall indemnify and keep indemnified [company name] against any income tax or employee NICs payable by [company name] to HMRC in respect of the fees paid for the Services together with any penalties or interest incurred or payable by [company name] in connection with such amounts provided that [company name] shall give the Contractor the opportunity at its own cost to challenge the demands or claims made by HMRC.
2. [company name] shall indemnify and keep indemnified the Contractor (including the Personnel) against any employer NICs payable by the Contractor to HMRC in respect of the fees paid for the Services together with any penalties or interest incurred or payable by the Contractor in connection with any such amounts provided that the Contractor shall give the [company name] the opportunity at its own cost to challenge the demands or claims made by HMRC."
It's clear that they're concerned that HMRC will judge them to be employing him and demand they pay employer NICs, and are thus trying to cover themselves for this - but they're doing it by attempting to put the whole of the responsibility on my DP as a contractor.
I think it's unfair, obviously, but can it even be enforced? If he was ruled to be an employee, presumably any clauses in a contract as a contractor that contravened employment law wouldn't be valid any more?
DP does have other clients, but this is where by far the bulk of the money comes from.
I would hugely appreciate any advice people can give!
Is HCA the company contracting with your DH and and your DH "the Contractor" pet the defined terms in the contract?
If that is the case, your DH is indemnify the contracting company for any employee NICs that should be payable and the contracting company is indemnifying your DH for any employer NICs that should be payable should HMRC find that there is, in fact, an employer/employee relationship.
These are standard terms in these types of contracts in my experience (as an employment lawyer). It's not legal for employers to require employees to pay employer NIC contributions so even if they tried, it wouldn't be legally enforceable. Hence why the contract States that each party are responsible for their own NIC contributions.
Does your DH think he might be employed then? These are fairly standard belt and braces clauses, both parties indemnifying the other, and reaffirming that both parties believe the relationship to be one of self employment.
If your DH thinks he is employed, then this particular clause isn't the biggest problem.
Sorry - just to be clear, your DH is indemnifying for any employee NICs and income tax that would be payable should he be deemed to be an employee by HMRC
I am involved in drawing up these sorts of contracts. It is commonplace for a company engaging a contractor to request an indemnity from the contractor against tax liabilities - the contractor is engaged on the basis that there is no employment relationship.
However, I don't understand the indemnity from the company to the contractor and have never come across this before. The company wouldn't be paying employers NICs - your husband would (assuming he operates via a limited company?)
The company would need to pay employer's NICs if HMRC found that there is an employer/employee relationship rather than that of self-employed contractor
These clauses will only kick in if that is the case
Does your OH have insurance for IR35? if so then i believe that the two main insurers will arrange a legal review of contracts and flag up any concerns.
Thanks everyone, that's given me a lot to think about, and is pretty reassuring so far. I've had a few glasses of wine now, so I don't feel I have the capacity to post competently about tax liabilities right now, but will return tomorrow morning to reply properly.
But while I think of it & I hope this doesn't come out all garbled: I do understand what Gobbollino says to be the case - but what else would also kick in? Would the contract as exists between a self-employed contractor & the company even be legally valid any more if an employee-employer relationship were found to be the case?
PS you're all brilliant.
In my opinion, the second clause makes no sense at all as the contractor will pay employer's NICS and there is no reference at all to 'if HMRC find there to be an employer/employee relationship'. That said, the indemnity can only operate to your husband's advantage anyway.
Agree with EssexMummy - my friends who are contracting at the moment have each contract reviewed for IR35 gotchas, I would suggest your DP does the same.
Bonhomme - it is stated that the indemnity comes into play should hmrc find that NUCs are payable in respect of the services so that would be the case of an employer/employee relationship was determined by HMRC. Obviously we haven't seen the full contract and the defined terms but that would be the situation the clause is drafted to cover. It's a boilerplate (in fact, I think it's from the PLC website!) clause.
OP - you may want to get the original post amended as the name of the company seems to be included (HCA?) and I have a pretty good idea who they are although HCA is prob an abbreviation
Agree you should also get a general review of the contract carried out too so that everything can be clarified
Gobbolino - have asked for post to be edited, thanks for pointing that out.
I thought it should say "employer NICs" rather than employee NICs - I think the context makes it fairly clear that it's actually these as it's specified that they would be owed by the company to HMRC.
But what I can't understand is how it would be legal that, if the clause does come into play because an employer/employee relationship is found to exist, the employee would thereby be liable for their employer's NIC contributions? Surely if that were legal any of us could find our employers deciding they'd rather we paid those contributions rather than them at any moment? Or am I being completely barking here?
No, clause 1 is correct as it stands. The context in fact requires it to be employee NICs, NOT employer NICs.
If HMRC tell the company that they should have deducted income tax and employee NICs at source your DP will be liable. If HMRC also tell the company they should have paid employer NICs that is a matter between the company and HMRC. There are no circumstances in which your DP would be liable for the employer NICs.
I subscribe to PLC so will check when I get the chance. In any event, the second strand is poorly drafted in my humble opinion and it feels as if there is wording missing, however am looking solely at the wording provided.
Both employers and employees pay NIC contributions. That's why there is a clause covering both. It's not legal for an employer to try and shift the burden for both sets on to the employee. That's why there are mirror indemnities in the contract stating that essentially the "employee" ( if do deemed by HMRC) would be liable for income tax and employee NICs and the "employer" for employer NICs. Bot these clauses only come into play should HMRC decide that there is actually an employment relationship
The point I'm making is that the wording doesn't say 'if HMRC decide there is an employment relationship'. If the Contractor is working via a limited company, his company WILL be responsible for paying employers NICs as they are his employer.
Apologies, wrote message but lostbiy. He's not working via a limited company, but as a sole trader. Does that have major implications?
You can be a self-employed contractor working via a limited company so I don't necessarily agree with that analysis.
The long and short of it is that employers only need to pay NICs in respect of employees. These are payable on demand to HMRC. That's why I am saying that the clause comes into play should HMRC determine there is an employme t relationship as it is only they who can demand the NICs. That's why its not stated as it doesn't need to be.
The "Contractor" referred to in the clause is a defined term and it's not clear if it is the DH personally or a limited company or personnel that he is supplying (as I've not seen a full copy of the agreement) but the clause is there to ensure that if HMRC determine an employer/employee relationship both parties are responsible for the tax that employees and employers pay
For the DH, that is income tax and employee NICs and for the company engaging him, that is employer NICs
The drafting notes in PLC explain all of this
I'll bow out now as I don't normally come onto these threads as it's a bit too much like hard work but was just trying to do the OP a favour!
command - no it doesn't materiakly make a difference so long as the contract makes it clear who the contracting parties are
It might be worth paying for a couple of hours with an employment lawyer to go through the contract as they are fault standard term so advice that your DH gets now could be helpful in respect of other contracts in the future and I think the fees (if DH is genuinely self-employed!) will be tax deductible - but don't quote me on that!
Not sure where you are but both the Scottish and English Law Societies let you search for solicitors who are employmevt law specialists. HTH
I am both a contractor myself and involved in drawing up these contracts for other contractors, so understand from various angles, including IR35.
In my experience, I have never to date seen an indemnity from the Engaging Company to the Contractor's company so whilst I don't think the wording is clear, the fact that the Engaging Company has offered one should be viewed positively.
You can pay for an IR35 contract/risk review (and I have had one of those done myself in the past), however HMRC look at the realities of how the relationship is conducted, not just what the contract says. Before you spend a few hundred quid with an IR35 assessor, have your DH look at the materials out there on the Internet and become a bit more informed. It is also possible to be caught by IR35 on one contract but not on another.
Of course an IR35 review is only applicable if your DH is accounting based on being outside of IR35. You can have your own company and still account as being inside IR35 - the two aren't mutually exclusive.
Personally, I wouldn't spend money with an employment lawyer - it is not an employment contract! If your DH spends any money, spend it with an IR35 assessor, if having read the materials, he thinks he is outside of IR35 and wishes to account on that basis.
Thanks everyone for the advice you've given. It's helped immeasurably to direct us in further research on the internet - we can now see at least one way out of this dilemma. It may be a bit fiddly, but at least it can be done - I was worried DP would just have to give up working for this company.
And particular thanks to Gobbolino for giving so much help - sorry it ended up being hard work!
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