The contract which you hold with your client or agency is essential to your operations, it confirms your engagement and sets out the terms which have been agreed by you and your client or agency. Contracts can vary and although there is no set requirements for a contract, there are good ones and those of lesser quality, so what should you be looking for:
1. Ink and Pape
It is quite possible to enter into a verbal contract, and although these are still legally binding, the terms can be very difficult to prove in a dispute. Any enquiry becomes a ‘your word against theirs’ type scenario which is less ideal than written clauses signed from the outset of the engagement.
Most contracts will consist of two parts; the terms (this is the legal aspect) and the schedule (this is the engagement specific aspect).
The contract should also clearly set out the parties to the contract, as this is important to reflect a business-to-business agreement between your limited company and the client or agency.
The legal terms are usually held in the bulk of the contract and the schedule will change for each engagement, so if you renew a contract, you will probably only review the schedule as opposed to the terms, although some clients or agencies may reissue a complete contract.
The schedule typically consists of how the contractor will be paid, the start and end dates of the engagement and the scope of work or deliverables to be provided.
In general, a good contract is understandable and unambiguous. Although you may wish to consult with a lawyer to review the contract from a legal perspective. You should be able to understand what is being agreed to just by reading it, although occasional jargon does come with the territory.
A vague contract will offer little or no assistance in a contractual dispute. Attention to detail on the terms agreed between the parties and the scope of services offered will fare better if there is ever a disagreement.
It is essential that there are clear terms and conditions which have been laid out and agreed to by both parties.
4. IR35 Compliance
Whilst an IR35 friendly contract is desirable, a contract that does not comply with the IR35 legislation is not necessarily a bad contract. In some cases, the terms of a contract inevitably sit within the scope of IR35 due to the nature of the work to be undertaken.
An IR35 friendly contract requires not only overall compliance, but robust clauses. It is possible to have a contract so vague that it barely mentions anything relevant to the IR35 legislation at all, or a contract that has clauses which are too controlling.
So what does an IR35 friendly contract look like? Here are some examples of good clauses in respect of the three key status tests:
- Substitution - "The Contractor shall provide the services using suitably qualified personnel of their own choosing. The Contractor reserves the right to substitute any personnel, provided the Client is satisfied that the substitute possesses the necessary skills and qualifications for the satisfactory completion of the services. The Contractor will remain liable for the services completed by substitute personnel and will bear any costs."
- Control - "The Client shall have no right to, nor shall seek to, exercise any direction, control, or supervision over the Contractor in the provision of the services. The Contractor shall endeavour to co-operate with the Client’s service-related requests within the scope of the services, however it is acknowledged that the Contractor shall have autonomy over their working methods."
- Mutuality of Obligation - "The Client is under no obligation to offer further contracts or services to the Contractor nor is the Contractor under obligation to accept such contracts or services if offered. The Contractor is not obliged to make its services available except for the performance of its obligations under this Agreement. Both parties agree and intend that there be no mutuality of obligations either during or following the agreement, whatsoever."
As always, it is best to have a professional review of your contract for IR35 compliance undertaken by someone who is familiar with IR35 and is best placed to make a good judgment on the quality of a relevant clause. It also may reduce penalties if caught by the legislation, if you have been seen to take ‘reasonable steps to ascertain your status’.
This due care can only be demonstrated where it is the contractor’s decision on the status of the engagement (Chapter 8 of the Intermediaries Legislation). If Chapter 10, part 2 of ITEPA 2003 applies, the responsibility for determining IR35 status sits with your client, and it would therefore be for the client to consider the engagements compliance with IR35 legislation.
In essence, a contract which clearly details all aspects of the terms and conditions that apply to your company, will put you in a better position should a dispute arise. If having a contract drawn up, a lawyer will be able to help. However, remember that no contract is bullet proof, a client can sue regardless of how robust a contract you might have.
Still struggling with IR35 contract compliance? Qdos offer contract reviews undertaken by experts, contact us on 0116 269 0999 to discuss your options.