With end-clients (other than small businesses) now tasked with determining IR35 status, it’s vital that contractors can ensure the decision made by their client is the correct one.
What is an ‘IR35 friendly’ contract in reality?
A common route contractors take to ensure this is looking for an ‘IR35 friendly’ contract template online, essentially to use as a reference point.
When people talk about an ‘IR35 contract’, they generally mean an ‘outside IR35 contract’.
For a contract to belong outside IR35, the wording must demonstrate that the contractor provides their services in a manner reflective of self-employment.
However, simply downloading a contract and hoping this will somehow convince your client that you belong outside IR35 isn’t necessarily the best approach.
The same goes for contractors engaged by small businesses, where they are still tasked with determining their IR35 status
There are several reasons why, which we explain in this article.
Working practices must reflect the contract wording
A so-called ‘IR35-friendly contract’ is worthless unless the words truly reflect the working practices of the contractor.
If the contract states that the contractor is self-employed, but the way they work is deemed to be more akin to that of an ‘employee’, then the contract may well belong inside IR35.
Seb Maley, CEO of award-winning insurance firm Qdos, explained why this is an important point:
In the last few years, a number of high-profile investigations have hit the headlines. One case that demonstrates the importance of working practices is Kickabout Productions Ltd. v HMRC.
In this case, two contracts were scrutinised. The differences between the contracts were ambiguous about the requirements and expectations of both parties – in effect, failing to accurately reflect the working practices.
So while templates are a good starting point, it’s critical to tailor them to suit each contract and ensure that it’s an accurate reflection of the working relationship.
Clients may prefer to use their own contracts
Additionally, even if a contractor downloads a contract – or has one drafted on their behalf – the likelihood is that clients (and recruitment agencies) will insist on using their own.
Seb Maley continued:
Following the arrival of the off-payroll working rules, using your own contract isn’t likely to be an option. In such a situation, seeking advice on whether the engagement is inside or outside IR35 would be prudent.
Let’s say it falls inside IR35. If your client is open to it, it may be worth collaborating with them to make changes to that contract so it reflects an outside IR35 engagement. However, everything must be reflected in the working practices – this is essential.
IR35 contract review
IR35 contract reviews remain incredibly useful for contractors to ensure that clients have made a correct determination.
In addition to having your contract professionally reviewed, you may also want to obtain a working practices review.
This will ensure that the contract aligns with how you provide the services day-in-day-out.
Protect yourself against an HMRC IR35 investigation
Award-winning Qdos IR35 insurance – from just £99 per year. Covers £50,000 of legal costs + outstanding tax liabilities if you opt for TLC35. Contract review service also available.
