Separate Contracts for Each Project

In the world of contracting it is vital for your contract to accurately reflect your working practices. Here we look at the value of establishing separate contracts for each project. We also provide some information on Contract Negotiations, Contract Clauses and the issues around Not Signing a Contract.

In the event of an HMRC enquiry into your IR35 status, their first step will be to review the contracts you have in place for the work undertaken.

The contract should set out how you will conduct yourself whilst working with a client. Providing that the contract demonstrates an intention to work on a self-employed basis and the contract is followed through in practice, there is no reason for you to be caught by the IR35 legislation.

Multiple projects and your IR35 status

Where you are engaged on a number of different projects, it is essential that your paperwork details all of the projects you are working on for the entire period of your engagement with a client.

The Contract should specify the start and end date for each project or body of work, together with the fees to be charged for each. This will help you to demonstrate that there is no mutuality of obligations between you and your client (i.e., there is no obligation on you to undertake any work outside the scope of your current contract, or obligation on your client to provide you with further work).

When you should put a contract in place

It is essential that you consider the terms of your contract before you start working on a project or assignment and ensure it accurately mirrors your working practices throughout your engagement with a client. If any aspect of your assignment or project changes, so should your contract. This will ensure that your contract always reflects what happens in practice.

Agreeing a contract for all projects/bodies of work before you start work will make it easier to discuss changes if required. It is significantly easier to discuss changes at the beginning of the assignment rather than towards the end of the engagement or even after the assignment has finished.

Undertaking additional work for your client

If you carry out any additional work for the client that is not within the remit of your original contract, this could affect your IR35 status because:

  • Your contract no longer reflects your working practices; and
  • You are not in complete control over the work you undertake, as it appears your client controls this as they pay for your time, they can ask you to do whatever they like.

If you find yourself working on more than one project you should contact your agency or client immediately to obtain:

  • A revised Assignment Schedule/Contract Confirmation Note/Purchase Order to list each project, detailing the start and end date of each. This may also include a brief overview of the services to be provided; or
  • A new Assignment Schedule/Contract Confirmation Note/Purchase Order for each project.

A separate Employment Status Assessment Form (“ESA”) for each project

You may be working in different ways or with different people on each project who may treat you differently. Having a contract and ESA for each project will help to build up your IR35 Defence Pack that can be used if HMRC enquire about your assignments.

You should also complete a fresh ESA every 6 months to ensure your working practices are reviewed regularly to ensure you are treated as a true independent contractor.

Dragonfly v HMRC (2008)

The case of Dragonfly v HMRC that involved a contractor arguing his IR35 status in order to avoid a tax bill of £99,000 highlighted the importance of undertaking a clear and defined project, which is specified in your contract. In this case, the contractor had moved from one project to another at the request of the end client leading the court and HMRC to conclude that the contractor had become part and parcel of the client’s organisation amongst other things and therefore should be taxed as PAYE.

Ensure the agency or client are clear as to the work you will be undertaking

The Contract is usually made up of two documents:

  • An “Assignment Schedule” which is sometimes called a “letter of appointment”, “Contract Confirmation Note” or “Purchase Order” – this document sets out the invoice rate, services, project name(s), start date and end date of your involvement in the project; and
  • The terms and conditions – this document is the “small print” and details the notice period to terminate the assignment, how the assignment is to be performed and your obligations or liabilities whilst working on the assignment.

If you are working on more than one project or your project changes over time, you may just need to make changes to the Assignment Schedule. You usually don’t have to change the Terms and Conditions.

Some agencies will send you regular contracts either quarterly or annually. You will need to ensure that the contract continues to reflect the details of the project you are working on and the fees you intend to charge.

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