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IR35 Agency Agreements

Client has outside of IR35 ruling, Agency Contract wants indemnifying against any future claims

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Client has come to us who has a new contract with his PSC with a major blue chip company.

The end client has prepared a status determination which states "Outside IR35"

However the contract is through an employment agency and their contract contains a very wide indemnification clause stating that the PSC will be responsible for any and all subsequent claims for Tax and NI, including all penalties, interest and professional and legal fees.

I have told him to seek legal advice, but I suspect any such clause would not be enforceable

Anyone else come across this, or is this clause enforceable?

 

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By paul.benny
11th Jun 2021 12:08

I'm aware of an agency that does this. I don't quite see the point: liability is with the engager and so the agency is not on the hook for claims.

My opinion is that having done the status assessments, the end client would push back against HMRC. Further, *if* there are no assets in the PSC, the indemnity is worthless anyway.

Incidentally, the same agency - a well known multinational - also invites contractors to purchase insurance against IR35-related claims.

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By Hugo Fair
11th Jun 2021 14:30

"liability is with the engager and so the agency is not on the hook for claims" ... except in certain circumstances IIRC - such as where HMRC chases the engager (on the basis they feel contract was inside IR35) only to find that engager has gone into liquidation or some other form of 'disappearance', at which point liability moves back down the chain (in this case to the agency)?

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By IanClark
11th Jun 2021 14:39

Thanks Hugo and a good point, in this case the engager is one of the bluest blue chips, so might be safer than most.

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By Kate Cottrell
11th Jun 2021 13:10

Unfortunately these indemnities are rife at the moment. Whether they are actually enforceable or not remains to be seen. The key issue is to make certain that the correct processes were followed when producing the SDS, including input from all parties and if so, to then seek removal or amendment to the indemnity clauses during the normal IR35 contract review stage.

Kate Cottrell Bauer & Cottrell

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By paul.benny
11th Jun 2021 16:08

Kate Cottrell wrote:
... seek removal or amendment to the indemnity clauses during the normal IR35 contract review stage...

Have you ever tried "negotiating" with the large recruitment agencies? In my experience it's a case of "those are our standard terms and you either accept them or we don't do business". That's equally the case whether you are candidate or client.

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By Kate Cottrell
11th Jun 2021 16:40

Yes Paul we negotiate changes every day. At the last count most have agreed to changes, including some of the big agencies. Perhaps it helps because we have been doing it for so many years and enjoy good relationships.

Kate Cottrell
Bauer & Cottrell

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By lesley.barnes
11th Jun 2021 14:26

I had one of these last week the SD said the client was found to be outside IR35. I advised the client to take legal advice as the contract said they were responsible for all costs as per your client. I could only advise the client that I thought that they were actually caught by IR35 looking at the terms of the engagement. There was nothing in there that was any different from being an employee. In this case I think the SD was manipulated because the client had said that they would leave if they were caught by IR35 and the contract was an attempt by the employer to cover their back.

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