Contract Negotiations

As a contract plays a key role in determining your employment status, it is important that you consider your contract from an IR35 perspective. The contract sets out how the parties intend to work together on the assignment, so it is therefore essential that you set out on the right foot.

1. Ensure that the contract is between your company and the Agency or Client

The contract should not be personal to the individual deployed to provide the services. Naming the individual as a party to the contract suggests that the contract is one for the individual’s services (i.e., a contract of employment) as opposed to a contract for services between two limited companies. The contract is between two companies and it is therefore essential that your limited company is both a party and signatory to the contract and not you personally.

2. Ensure that the contract covers your entire involvement in the project and not just a period of time

Agreeing what work you will undertake for the client at the outset will ensure that you charge appropriately for that work. It will also prevent the Agency or Client trying to impose other tasks upon you that fall outside the project or the scope of the original contract.

3. Ensure that you agree a “mutuality of obligations” clause

This will mean inserting a clause into the contract to state that you are not obliged to accept any work from the Agency or Client and that neither the Agency nor the Client is obliged to offer you work. Including this clause in the contract will support the fact that neither party intends to create a “mutuality of obligations” which is an essential element of an employment relationship.

Clearly, if the Agency or Client wants you to undertake additional work for them, you should be able to charge for this separately and re-negotiate your contract terms before undertaking the work.

4. Ensure the contract allows your company to provide a substitute as and when required

This remains an essential element of being able to defeat a challenge under IR35. Whilst the right to provide a substitute should be exercised in practice to help demonstrate that it is a valid right, it is paramount that an acceptable clause is inserted into the contract at the outset of the assignment.

5. Ensure that the contract reflects the fact that you are an expert in your field

Having a clause which states that you will not be directed, supervised or controlled as to how you carry out your services demonstrates that you are an expert in your field and are not subject to the level of control which you would expect to be exerted over an employee.

It is reasonable to expect an Agency or Client to require you to comply with certain Health and Safety processes or other site requirements whilst working on the assignment. It is also reasonable for the Agency or Client to retain some right to review the work completed or co-ordinate your work into a larger project in accordance with industry set processes and / or procedures.

It is important to remember that you are engaged for your specialist skill and experience. The Agency and Client will not want to have to tell you how to do your job and it is reasonable to have this reflected in the contract.

6. Ensure that you reserve the right to work for other clients

Being in business of your own account means that you should not be tied to provide services to one client and should have the ability to profit from your own sound management. You will need to be able to provide services to whomever and whenever you choose and having a clause in the contract to reflect that this is a non-exclusive arrangement will help you to demonstrate this.

However, whilst a luxury of being in business of your own account is to be able to pick and choose your clients and when to work, all entrepreneurs know that it is essential to work with your clients to ensure that the job gets done well and on time. This is unlikely to affect your IR35 status provided that you agree your involvement and intentions towards the assignment at the outset with your Agency or Client.

7. Provide your services on short, fixed term assignments

Working on several assignments with numerous clients will help you to demonstrate that you are in business of your own account, that you have flexibility in the way that you work and have the ability to manage your own time.

8. If you have insurances in place, specify the extent to which you will accept liability if anything goes wrong

All independent contractors are at risk if their work is substandard, impacts on or delays a larger project and as such it is reasonable for you as an independent contractor to accept this risk. However, in order to minimise your exposure to financial risk, you should limit your liability to the insurance cover that you have in place. This should be done at the outset when negotiating a contract for any assignment.

9. Set out in the contract what training and equipment you will be providing for the assignment

It is good to demonstrate that you are investing in your company and not just relying on your client for the tools and equipment you need for your work.

This is of course unless there is a good reason for not providing your own training and equipment such as unreasonable costs or the specialist nature of the tools required for the work.

10. Get professional business advice

This is on the contract you intend to agree with the Agency or Client. This is to ensure that the contract reflects your independent contractor status under IR35. Getting this advice before you start the assignment and/or sign the contract will make it easier for you to request changes to the contract if required.

Once you have started work on the assignment, you should ensure that your working practices mirror the contract in demonstrating that you are working as an independent contractor. Completing an Employment Status Assessment Form can do this.

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