IR35 and Contracts

Once you’ve secured yourself a client, whether it is directly or indirectly through an agency, you will be asked to sign a contract. This contract lays out the terms of your agreement, and generally does so with a reasonable degree of detail. Especially if you have secured your contract through an agency, the recruiting agent will likely be very keen for you to sign as quickly as possible so that their job is done and they can focus on filling another contract. Whatever you do, do not sign on the spot.

Once signed, a contract is binding and there may be things in there you don’t like, and not just in terms of IR35. These days many agencies have standardised contracts and these have been amended over the years through dealing with other contractors to be more or less IR35 compliant, although this may not always be the case. Before signing a contract, you should always have your written contract reviewed for compliance with the IR35 legislation. You can also combine an IR35 compliance review with a legal review providing a comprehensive risk analysis as well, with Qdos’ Full IR35 & Legal Review service.
IR35 compliance reviews will look at all relevant clauses in your contract as well as the contract schedule and evaluate each one as to its quality and value, finally evaluating the whole contract in its entirety to reach an overall assessment on whether the contract lies within or outside the scope of the IR35 legislation.
A professional contract review will not only help you on your way to evaluating your employment status, it may reduce penalties charged if you were eventually brought into investigation and found owing. A professional review will be seen as taking “reasonable steps to ascertain” your status and any penalties will likely be reduced.

If your contract is with a recruitment agency, then you are involved in a two-tier contract, meaning that you hold one contract with the recruitment agency, and the agency holds another contract with the end client. This second-tier contract may have an effect on your employment status if brought to an investigation, particularly if the terms of this contract do not mirror your own, but the problem is that you have no right to ever see it. This is a tricky situation and you can request to see a copy although your agency is in no way obliged to, nor is likely to, show it to you. In order to reduce the risk of this second contract coming in to play, be clearly outside the legislation (or inside and paying the relevant tax and NICs) so that HMRC don’t have a reason to delve so deep.

Once you are happy with the contract, you can sign and proceed with work, however, once work has commenced you will need to make assessment of your working practices. This is your real-life situation and it should mirror the terms of your written contract. Your working practices will always take precedent over your written contract so finding confirmation from your end client of hypothetical clauses such as your right to substitute is worthwhile in order to be completely satisfied that you are operating outside the realms of IR35. Remember that anything which confuses your position with that of an employee will not be IR35-friendly.

Verbal contracts are rare with contracting work but do occasionally exist. In the event of an IR35 investigation, you will need to put the terms of your agreement down in writing and obtain a letter from your end client confirming that the terms are correct. If you undertaking this activity, you should address all of the key status tests involved with determining your IR35 status.

Qdos are one of the leading authorities on IR35 matters and offer a variety of services in relation to the legislation, from status reviews to insurance policies. For more information on IR35 or to view a model IR35 contract, please visit our online IR35 Hub. If you require assistance, please feel free to contact us on 0116 2690999.

By:Jane Hailstone

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