What you need to have in a Contract for Services
As a self-employed freelancer or contractor working on projects for clients, it’s important to have a contract for services that covers all of the essential clauses needed to ensure you are protected from a legal and tax point of view.
This way, if a client doesn’t pay you on time or they try to say what you have delivered is not what you agreed, you can refer back to what has been stated and signed for in your legally binding contract. This will protect you if ever they try to take legal action and will also allow you to take legal action against them, if they don’t follow through on their part of the deal.
In this guide, we will look in to:
- What a contract for services is
- Why contract for services are important for self-employed professionals
- What the difference is between a ’contract for services’ and a ‘contract of service’
- What you need to have in a contract for services
- When to draw up and sign a contract for services
- How you can access a contract for services template, put together by a team of employment law specialists.
What is a contract for services?
A contract for services is a business-to-business legally binding contract, sometimes referred to as a ‘service agreement’.
This type of contract is used between a self-employed freelancer, contractor or consultant (working outside of IR35), and a business they are carrying out services for.
Why are contract for services important for self-employed professionals?
Getting your agreement with a client in writing is crucial as if you only confirm terms verbally, there is no evidence there to back you up if something goes wrong or a client becomes difficult.
Having a contract for services, for each contract you work on, will help to protect you from a legal point of view. If you and a client disagree on something, for example they don’t want the substitute you have supplied to do the work, they want you personally, you can refer to the clause in your contract where you have outlined your right to provide a substitute. Without a contract, it’s your word against there’s and in situations where there is a disagreement, it becomes difficult to prove what has been agreed.
For tax purposes, and proving your IR35 status, a contract for services is also useful. If you have a contract of service with a client, it suggests that you’re an employee whereas if you have a contract for services, you can include clauses, or exclude clauses, which demonstrate that you are genuinely self-employed.
This would include your contract stating your right to provide a suitably qualified substitute, as well as showing that you have control over what, how, when and where you complete your working day and not suggesting that there is any mutuality of obligation (a client being obliged to provide you with work, and you being obliged to complete it).
IR35 contract for service case law determines that substitution, control and mutuality of obligation are the three main factors – in a contract and in practice – that will be used to determine whether a contractor is working inside IR35 or outside IR35.
Contract for services vs contract of service
There are different types of contracts that you need to be aware of which represent different kinds of relationships between the two parties in the contract.
Make sure that your contract is a ‘contract for services’ rather than a ‘contract of service’. A ‘contract for services’ as we mentioned above is a business-to-business contract, so your business as a limited company or sole trader working with another business – your client – to provide your services until a specific project is complete, or to provide your services for a set amount of time. A contract for services is what you should have in place if you are self-employed.
You may be wondering what a ‘contract of service’ is and how it is different to a ‘contract for service’ when they both sound very similar. A ‘contract of service’ is more typical of an employee-employer contract of employment where the employed individual is providing their services to a business on a permanent basis.
This is why, despite them sounding similar, it is important to distinguish between a contract of service and contract for services, if you are a genuinely self-employed individual paying your own tax, working outside of IR35.
What to include in a contract for services
There are some key terms that you need to have in your contract for services. Including these terms will increase your chances of being protected if something goes wrong or if you have an issue with your client.
Firstly, you’ll need to begin with adding the date and both the name of your limited company and the name of your client’s limited company. Then follow with adding in the key terms outlined below:
• Time to be spent on the project
How much time are you expected to spend on the project? Is there a minimum number of hours you have to work daily, weekly or monthly? Are there primary hours that you need to be online, or do you have complete flexibility on the days of the week and time of day you work?
• The work to be delivered
What work exactly have you been appointed to do? Make sure that the specification for the project has been established and that both you and your client know and agree on those areas where detail is going to be required further down the line.
• How will you be delivering the services?
How often would your client like you to be on site? Are you permitted to work on site when it suits you, or do you have to get their approval beforehand to come in?
• Project delivery dates
What is the deadline for getting the project done? Will there be a deadline for each task within the project? It’s important to outline in your contract whether these are hard deadlines or aspirational deadlines. If time for delivery is of the essence, this could mean that if you miss the deadline, even if only by 10 minutes, you are in material breach of the contract and the other side can terminate and claim damages, which may be costly. Where feasible, avoid time for delivery being of the essence.
• Getting paid
Determine how and when you will be paid for your work. Outline what you will need to give them for payment to be processed. You may be expected to use an automated system or there may be a time limit by which you have to submit timesheets or expenses. If the payment process is set out in a document already then you can refer to that document by name and don’t have to repeat everything in the contract. It’s best to have the process understood and identified somewhere to reduce the chance of there being issues further down the line.
Other factors to consider including are:
- Definitions of terms that could be ambiguous
- Termination of contract terms
- Your right to supply a suitably qualified and experienced substitute
- The information or assets your client needs to supply you with or the cooperation you’ll need from them for the successful completion of the project
- Expenses procedure (if applicable)
- Confidentiality agreement – this would likely be more for the benefit of your client if you have access to any confidential information
- Any agreement to use their property such as keys, swipe cards, software or documents
- Tax liabilities
- Indemnity agreement – i.e., if your client requires you to have professional indemnity or public liability insurance
- Data protection and data processing agreement
- Intellectual property agreement
Finally, at the end of your contract terms, make sure both you, on behalf of your business, and your client have signed and dated the contract.
When should your contract for services be drawn up and signed?
Ideally, your contract needs to be created and signed before you begin any work, so that you are protected from the get-go.
If there is an urgency to get work started before your written agreement is in place, do make sure that there is at least some form of heads of terms confirmed and that a fully written service agreement follows as soon as possible. If your full written agreement is confirmed and signed a week or two after you begin work, it can still be stated to have retrospective effect from day one so that you don’t necessarily have to lose any protection due to having your contract finalised after the work has commenced.
Contract for services template
You can access a contract for services template, put together by a team of specialist solicitors on the Markel Law Hub. Access to the Markel Law hub is free for Markel Direct customers.
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