Eight key points contractors should look for in a post-IR35 contract
The fallout from private sector IR35, launched on 6 April 2021, is arguably yet to be fully realised by contractors and end-clients.
One thing contractors can take comfort in is the fundamentals of their engagements haven’t actually changed that much.
There are still key points in contracts that contractors should be looking for before signing up to undertake any project or engagement.
Due to the issues surrounding IR35, contract reviews have typically focused on the implications of key points within contracts that may have an influence on a contractor’s IR35 status. However, the overall commercial aspect of the contract also needs to be considered prior to an engagement.
It’s common for many people to skim through contracts and binding documents and lose focus on the finer details, but it’s important to ensure you fully understand your contractor role so your engagement can be as successful as possible for you and your client.
We look at some key points that private sector self-employed contractors should consider in the post-IR35 economy.
1) Ensure the contract is “For Services” and not a contract “Of Service”
The key point contractors need to look for in a contract is that the contract clearly states it is “For Services” between the contractor’s limited company or the contractor’s umbrella company and the agent / end-client.
If a contract states “Of Service” it is likely to be a contract of employment which will place you, the contractor inside IR35.
2) Look carefully for the term and termination details in the contract
The terms and provisions contained within a contract will apply to you throughout the term of your engagement. It’s important to ensure the duration of the contract is clearly stated so you are fully aware of your contractual obligations.
3) Know exactly what the payment terms of the contract are
Your contract of engagement should clearly set out the payment terms and conditions, including the process of how you are to invoice the hiring company and the date when you can expect payment. It’s important to iron out this point at the outset to ensure you are paid on time as payment processes are different from one agency to another and from one client to another.
Remember to look for ‘small print’ which may state any circumstances in which the hiring party may look to withhold or delay payment to you.
4) Know exactly what your contractual obligations are
Contractual obligations have been under the spotlight for years now due to IR35 and to some high-profile court cases involving the obligations and the working practices contractors.
There will be many obligations in your contract you’ll be required to follow during your engagement. It’s important you read these carefully to ensure you understand them all. If you don’t understand any of them, you must raise the question before you sign the contract.
Contractual obligations usually include business insurance such as professional indemnity and public liability, intellectual property, and confidentiality.
They could also include exclusivity, which would mean you’d need to look carefully for the following points:
- Control
- Right of substitution
- Mutuality of obligations
If your contract states you’ll be working inside IR35, then one or more of these points will likely be present.
If the contract purports to be outside IR35, yet one or more of the three key points above appear in your contract, then it might be wise to book a contract review to clarify your position prior to signing the contract otherwise you may unknowingly find yourself working inside IR35.
5) Check for any restrictions
It’s important to identify any restrictions stated in the contract, these typically include post-termination restrictions and non-disclosure agreements (NDAs).
If you breach a post-termination restriction you could be liable for damage sought from you and even the possibility of an injunction.
6) Clarify the indemnity and liability of the contract
As a contractor you MUST identify and clarify this area of your contract.
An indemnity is a legally enforceable promise in which a party to the contract (you the contractor) accepts the risk of loss that the other party to the contract (the hiring party) may face in certain situations, such as financial losses suffered from negligent advice and/or mistakes, and from tax or employment claims.
It’s vital you are fully aware of the indemnity provisions in the contract so you’re satisfied with your potential liabilities should anything go wrong. As such, you will need to ensure you are insured (professional indemnity insurance and public liability insurance as examples) just in case.
If you’re unsure, it would be wise to engage in a contract review to clarify your position prior to signing the contract.
Professional Indemnity insurance (PI) and Public Liability insurance (PL) are usually requested as key requirements of contracts. The policies protect both the contractor and the hiring party from any unforeseen risks, such as mistakes and negligent advice, and third-party personal injury or damage. Carrying PI insurance and PL insurance may even help you win contracts!
If you need Professional Indemnity insurance and/or Public Liability insurance for your contract, Markel Direct can provide both policies at via our quick online quote and buy facility.
A contract that requires you to carry business insurance for indemnity and liabilities is usually a good indictor that you will be working outside IR35.
7) Check the location and flexibility of the contract
The environment in which a contract professional works can be a crucial factor for levels of productivity.
Location is now more important since IR35 was introduced because if you are required to always work on-site for the hiring party you could run the risk of working inside IR35 under the rule of ‘control’.
You may also want to consider what a potential commute could mean for you. A long commute can be stressful, while the surroundings you are expected to work in can also have a negative effect on the way you work and how you feel.
For some contractors, this won’t be an option depending on their profession, but for contractors who can work remotely it would be pertinent to ask about remote working flexibility, even for as little as one day a week.
In summary, you need to be sure you’re happy before you sign the contract.
8) Look for the Key Information Document (KID)
If you undertake contract for an agency or an Umbrella company, then you need to look for the Key Information Document (KID). The KID was introduced in April 2020 and is an obligation on agencies to provide information about deductions and fees to which agency workers are subject, including via Umbrellas.
The KID is designed to provide transparency about deductions made from the rate for the engagement.
Examples of documents to be used to provide information to agency workers, workers paid by an Umbrella, and those providing their services via a Personal Service Company (PSC) can be found here: https://www.gov.uk/government/publications/providing-a-key-information-document-for-agency-workers-guidance-for-employment-businesses
Download our handy contractor checklist pdf here.
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