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IR35 deed of indemnity

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Could an employer get a deed of indemnity from the Personal Service Company that would cover it for unpaid tax? I.e. it would keep the system as it was prior to this week, in that the PSC is liaible for its own underpaid tax?

I appreciate it would only work if the PSC has assets to be able to collect against, but would this at least reduce the liability to the employer?

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By paul.benny
06th Apr 2021 10:46

You can always ask. But it depends whether the contractor is willing to provide it.

It's also possible to purchase insurance to cover the costs of an HMRC challenge, and, for a higher premium, any tax demanded. I am aware of at least one intermediary that attempts to push its contractors to buy this insurance, even though the liability rests, in the first instance with the 'employer'.

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By lesley.barnes
06th Apr 2021 10:58

Would that not be waving a red flag? If the "employer" needed a deed of indemnity isn't that saying the contractor is caught by IR35. As you've already pointed out this is assuming the PSC had funds to pay the "employer" if HMRC enquired.

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By jantill
06th Apr 2021 14:22

I suspect that you need advice on how to be compliant with the IR35 legislation.
If you are the "end-user" and consider yourself an employer you are already in the mind-set where you will need to operate the IR35 legislation.
Demanding that your "employee's company" indemnifies you for monies that are your responsibility to pay would seem difficult to enforce no matter what agreement you have contrived.
You would seem to have two options to be compliant with the legislation - either you use an independent contractor and pay the "PSC" gross after determining that both the agreed terms and the actual work are for an independent business providing services or a package of work, or you need to create a written Status Determination Statement (SDS) and pass it to the PSC and then pay the PSC net of taxes.
I suspect that there will be very few PSCs which will be prepared to operate in an "inside IR35" environment as they will be operating with all their costs coming out of already-taxed income.

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By Kemu
08th Apr 2021 11:09

I agree with most of your comment, but I suggest that your offer of two options is a bit unclear. The options regarding responsibility depend on size (see my reply to the OP) - and the payment nett or gross would depend on the result of the determination of 'inside-' or 'outside IR35'

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By Kemu
08th Apr 2021 10:59

I'm afraid my research suggests that this is inappropriate and you appear to be misunderstanding the regulations. If your company (the employer) is a medium or large entity (Turnover >£10.2m;Balance Sheet >£5.1m;Employees >50; meeting 2 of these 3 conditions over two years) then your company must now produce a Status Determination Statement regarding every individual contract - and will carry any liability to HMRC should they in any future investigation decide you were wrong. If you are below those thresholds then it is the PSC that will carry the liability to have correctly evaluated the circumstances of the contract. My conclusion is that an indemnity clause is pointless in either case. I'm not an expert, but I've done a lot of research as this matters very much to my business in the private sector. I'd be happy to stand corrected here by others with greater knowledge.

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By ASF
08th Apr 2021 12:31

Kemu, I have no basis to challenge the voracity of your research, but doesn't it just feel perverse when the size of the ultimate hiring company (let's say "employer" for a moment) determines whether they or the contractor's company must make the determination. If deemed a "small" employer, then the onus shifts to the contractor to make it. Yet, almost invariably, the contractor could be expected to be smaller, and is less likely to have access to the resources to make that determination without resorting having to pay someone else to do it for them! Strange, and on this evidence, feels like another piece of legislation aimed squarely at enriching the army of professional advisers (that must now surely be approaching the size of China's military might)! Agree the Indemnity clause seems pointless, but feel equally certain many "employers" will insist on it, to try to scare the contractors, based on contracting "power", and then let it be struck down either by HMRC or the courts. Similarly, I would hope the contractors will find sufficient resources to purchase insurance, but maybe that is naive?

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By Kemu
08th Apr 2021 14:08

Yes to all your questions and points. Perverse it is. However, they've discovered there are too many little ones and are hoping to scare the big ones into corralling us for them - as workers or under umbrellas - either way, into steady PAYE feed-lines. We are faced with a group of people in permanent, pensionable jobs (Government and Civil Service) who cannot comprehend that anyone would not want the same - so we must be up to something dodgy. Freelance is a positive life/work choice for me, but they don't get it. The trouble is that there are a lot of dodgy geezers out there (and many in those PPJs) who give us all a bad name and a hard time.

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By ASF
08th Apr 2021 16:11

So much for the Government, and their "gig" economy. They still can't get beyond everyone must be an employee of someone! Clearly they need to focus on some innovative solutions to waiting until after the year-end to collect taxes. Maybe MTD/RTI might aid that thinking. I can't disagree that many people seem to expend a large amount of effort (or pay someone else) to find ways around paying their fair share, but surely in this day and age................

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