So you’ve secured a contract…great! But before you agree to take on any project, there are some points you should consider before signing on the dotted line. Particularly with the clampdown on IR35, every contract you are given should be read carefully to evaluate your IR35 status. Since IR35 is such a complex legislation, the devil really is in the detail, so it’s very important that you read every clause judiciously to determine the IR35 status of your employment. This way you can also assess whether you should work with an umbrella or through a limited company.
Make sure intentions are explained clearly
Firstly, confirm your contract includes an exact list of duties that you are expected to carry out on this assignment. If there is only a very basic or vague summary of your duties, then you should insist on an accurate description being included of the specific project or projects you will be expected to complete.
Additionally, every contract should always clearly explain that the relationship between yourself and the end-client (or agency) is that of supplier and customer and not employee and employer. However, it’s important to remember that you must clearly enact these intentions, as if the work in practice is different to the intentions expressed in the contract, the written intentions will likely be ignored if you end up in front of a tribunal.
Part and parcel with the company
In-line with the concept of intentions, if your contract expresses a clear supplier and customer relationship, however, you become so integrated into the company that you essentially begin acting like an employee, your IR35 status could be subject for review. You should never take on responsibilities outside of your contract such as having other staff members reporting to you. The only duties outside of your project you may take on are industry necessities such as obligations concerning well-being and safety.
Supervision and control
If you want to be considered outside of IR35 then your contract should avoid expressing how your work should be done. If the contract at features a clause that highlights there will be a level of control and management over the method and manner of your work, this would place you inside of IR35. Your end-client should not have the authority to direct or supervise how you work. They should simply expect you to deliver the work they have contracted you for.
Mutuality of obligation
Mutuality of obligation is a key factor in assessing your IR35 status. If your contract specifies exclusivity to the project at hand and you are not allowed to take on other assignments, then this is considered mutuality of obligation. Equally, if you are obliged to take on any work given to you by your client and there is an expectation for your client to provide you with more work, this again would be classed as mutuality of obligation, which means you would be regarded as a ‘disguised’ employee and inside IR35.
Furthermore, if your employer were in total control of extending your contract should they see fit, this would be considered inside of IR35. If you want to be outside of IR35, your contract should note that your client or agency must receive your consent to extend a contract. Additionally, if the client requires further work to be done, it is advised to set this out in a separate contract, to ensure you’re safely outside of IR35.
As a contractor, there is the notion that you will incur more financial risk than a permanent employee. Thus, having flexibility in the way you charge and are paid your fees is another determinant of the status of your employment. If your contract has a secure schedule in place, where you know you will be paid on a weekly or monthly basis for your services, regardless of the actual work done, then it may be considered inside of IR35. To be outside of IR35, your contract should ideally underline, that you would be invoiced for every project milestone completed.
Right to substitution
Another element that you should look out for in your contract is your right to substitution. This is significant in determining your IR35 status. Your contract should state that you have the right to supply a replacement contractor should you be unable to continue carrying out the service under your contract.
Termination of your contract
It’s also always important to take into consideration the circumstances in which a contract can be terminated. Note the notice period you must give to end the contract and make sure the contract is conditional based on both parties fulfilling their part of the bargain. Whether it’s the client or the contractor who does not fulfil their side of the agreement, the contract should be able to be terminated without obligation.
Need help reviewing your contract? At K&B Accountancy Group, our Essential IR35 package includes access to IR35 experts Bauer & Cottrell who can provide advice, reviews and protections against IR35 legislation. Although, if you think you are in fact caught inside of IR35, Cloud9 Umbrella can support you with their straightforward, honest and 100% compliant payroll service. Click here to find out more about how they can look after the administrative burden for you.
If you’re an existing limited company director who is looking to switch accountants, you can switch to K&B for FREE without the need to pay for any ‘catch up’ or retrospective accountancy fees for the previous year’s accounts and corporation tax return*.
If you’re entirely new to contracting, let Cloud9 handle things for you. For a limited time only they are offering new contractors the chance to trial their service. They will process your first payslip free of charge and if you love what they do for you, you can get another month free too! * Find out more and sign up today! *T&Cs apply