Top 10 tips to make your contract outside IR35

With private sector IR35 reform now well past one-month-old and outside IR35 contracts fewer in number, it has never been more important to ensure that you protect your status by gathering evidence and operating in a way that confidently demonstrates that you are not a disguised employee, writes Helen Christopher, operations director of Orange Genie.

Here are ten top tips on how to do this.

1. Ensure your contracts accurately reflect your actual working practices

A cleverly written IR35 compliant contract is great, but unless it reflects how you and your end-client behave towards each other, HMRC and the courts can ignore it, labelling it as a ‘sham.’

Make sure that both the contract between your limited company and your agency as well as between agency and end client do not contradict each other.

2. Make sure you and your end-client see things the same way

Where your end-client is responsible for determining your IR35 status, a status determination statement should be issued, and it should contain clear reasons as to why the assignment is deemed outside IR35.

If you are still responsible for determining your own IR35 status, you might consider asking your end-client to sign a Confirmation of Arrangement statement.

The CoA sets out how both parties interact and how they see the relationship working in practice. It is good to get this signed at the time by a representative of your end-client that knows you and how things are working. It is always harder to confirm this at a later date if contacts have moved on.

3. Defining contract terms

From an IR35 perspective, project-based contracts are better than period-based, and defined project lengths are better than rolling contracts. 

Being engaged on an ongoing basis may suggest you are there to fulfil an ongoing position of the client or to undertake a long-term business role that one might expect to be fulfilled by an employee.

Project-based work should demonstrate the end-clients need for your expertise for a specific reason and set period. Project work would provide you with the opportunity to quote a fixed fee, meaning you are exposed to the risk of overrunning but also the potential to complete early and seek additional projects. Ensure your contract reflects these points.

4. Demonstrate a lack of personal service

Contracts should be drawn up in the name of your limited company. Avoid being named as an individual in the contract as this implies a requirement for personal service.

Consider occasionally sending a substitute in place of yourself. Providing a substitute gives unequivocal evidence that you are not required to offer personal services and therefore you cannot be deemed an employee. Retain evidence of your substitution, keeping diary entries, invoices, and records of payments.

5. Control your own assignment.

Vitally important if you want to be outside IR35 is your ability to demonstrate that you manage your own assignment and that you do not rely on tasks being allocated to you. Autonomy to complete the task in hand by the ‘due date’ is important, as is being able to define what needs to be done to achieve the client’s desired outcome.

Retain records of negotiations where these terms are agreed and record your input into defining the work to be done.

6. Set your own working terms

It is critical as an independent contractor that you are not under any control of your end-client. You should determine the hours that are required to complete the work and when you will undertake those hours. Try to work different hours each week and avoid a ‘standard’ week as much as possible.

Where you work should also be at your discretion whenever possible, although occasionally practicalities can dictate this.

7. Avoid creating a mutuality of obligation

Avoid creating a mutuality of obligation akin to an employment relationship. Make sure you retain flexibility to carry out work for other end-clients at the same time, keep a record of periods where you had multiple clients.

Ensure that your contract states exactly the services you have agreed to do and do not accept changes to this without re-negotiating the contract and fee to reflect the additional requirements. Retain evidence of your refusal to undertake work outside of the contract!

Do not create any level of expectation that you will continue to accept additional work that is offered and don’t assume more work will be offered.

8. End the contract on a commercial basis

Ensure the contract is set to terminate automatically as soon as the project is complete or at the end of a fixed period, whichever is sooner. Additional work should be renegotiated, and new contracts written.

Notice periods should be kept to an absolute minimum and there should be the ability for both parties to terminate the agreement immediately in certain scenarios.

9. Invest in your company

Visibly demonstrate that you are running a business. Set up your own website and market yourself through social media and networking groups. Disguised employees would not do this, businesses do.

Have your business cards in the name of your company and your company contact details.

Set up an office and work away from the client site. Ensure you invest in the equipment you need to provide your services. Invest in your own training and development – employees would expect employers to pay for this.

Ensure you have obtained Professional Indemnity insurance to protect your business from errors and mistakes.

10. Stand out from the employees

When engaging with your end-client hold business meetings to explore how you might be able to provide services to meet the client’s needs, do not have an interview. Share ‘client testimonials’ with the end-client not a ‘CV’s Employment History’ as you are entering a business to business relationship and not employment.

Once engaged, it is very easy to slip into being integrated with your end-client, especially if you contract with them for some time. Make sure to the outside observer you can be clearly identified as an independent contractor.

If you have an identification pass to enter the client site, make sure it has your company name on it as well as yours and that it states you are a contractor.

Similarly, if your end-client provides you with an email address, make sure it is not just your name but also includes your company name or an identifier that lets people know you are a contractor. Likewise, if you are added to an internal company directory or phone list, your company name should appear alongside yours.

In addition, use your own equipment to complete the tasks as much as possible. Even if systems mean you must use your client’s equipment for some tasks, make sure you also use your own for what you can.

Where facilities are available to employees such as on-site gyms or canteens refrain from using these unless the terms on which you do are different to those relating to employees. For instance, there may be a two-tier pricing structure in place in the canteen.

Final thought

Although since April 6th 2021 the decision of your IR35 status is no longer yours if you contract for a medium or large company in the private sector (and also no longer your decision if you’re contracting in the public sector), should you be able to do all or at least most of the above things, then you will be going a long way to demonstrating true outside IR35 status.

Thursday 13th May 2021
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Written by Helen Christopher

Chartered accountant Helen Christopher is a former head of finance & accounting and a former chief operating officer, who has worked for 28 years in corporate roles. Helen qualified as an accountant in 1995 with Price Waterhouse (now PwC) – the year she became a member of the ICAEW, and seven years prior to her becoming an FCA. Also a local magistrate for the Department of Justice, Helen specialises in tax, accounting and HMRC advice for small companies and their owners. 
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