As the written agreement between you and your client, your contract details the duties, rights and responsibilities of your role as a contractor. It might seem like jargon, but the wording of your contract means more than you think. IR35 legislation has been a stumbling block for many contractors since last year – could your contract be the key to staying outside of IR35?
When requesting a IR35 review, your contract will play a huge role in defining your employment status. But what should you include to strengthen your self-employed status and avoid the penalties, interest and backdated tax that goes hand-in-hand with being caught by IR35?
Avoid clauses that define ‘control’
If your contract contains clauses that identify you as under direction, supervision or control, you could easily fall inside of IR35, regardless of your freelance status. Even the smallest phrase, such as describing start and finish times, days of work, or the time taken for lunch, can be used to class you as under control. Many contractors include contract duration in their written agreements, but as a true freelancer you should have full control over when and how you work. These phrases should not be included in your contract.
Specifying that you work exclusively for your client is also a big no-no. As a freelancer you should be able to accept and fulfil other contracts. The contract must indicate that you have no obligation to undertake work offered and, at the same time, the client has no obligation to offer you work.
Provide a suitable substitute
With their employment status, employees and workers cannot legally source and provide another individual to complete their work for them. Including a substitution clause is therefore an excellent step to ensuring your contract is IR35 proof, or as Contractor Calculator puts it:
“To have a cast iron guarantee of avoiding IR35 an exercised Right of Substitution is the ultimate factor. The clause in the contract must be worded correctly to ensure any substitution right is valid – it must be unfettered and you must pay the substitute yourself. And if you then exercise the right it’s impossible for HMRC to prove personal service exists – which means you can never be a disguised employee and therefore are outside IR35.”
Be clear on the lack of employment benefits
Contractors will often work at the premises of their clients and use their equipment to fulfil their roles. However, being clear on what’s not included is important, particularly when it comes to the benefits usually unlocked through employment. As a contractor, you will have no rights to statutory sick pay, statutory maternity or paternity leave, time off for emergencies, holiday pay, or redundancy pay. Your contract should confirm this.
Need further advice about making your written contracts IR35 proof? The support of our specialist team comes as standard across all our payroll products. Click here to find out more about the financial solutions we provide.