To successfully avoid IR35, both the terms of a contract for services, and the working practices of the individual providing these services must demonstrate that the worker is in business on their own account, and not merely a disguised employee. Here, we discuss the importance of contract wording and provide links to example IR35 contract templates for you to download.
Since 2000, when IR35 was first implemented, a burgeoning ‘IR35 industry’ has built up, with a multitude of limited company accountants and employment status experts happy to provide IR35 contract reviews and advice.
What is a so-called ‘IR35 friendly’ contract?
Of course, an ‘IR35 friendly contract’ refers to a contract to provide services which demonstrates that a worker is not caught by IR35. Whilst many agencies promote their contracts as ‘IR35 friendly’, each engagement should be reviewed individually, including the working practices, and the term ‘IR35 friendly contract’ should not be relied upon.
Important points related to IR35 contracts
- The contract between contractor and agency (or end client if working direct) should demonstrate self-employment.
- The lower-tier contract (contractor-agency) should mirror the terms of the upper-tier contract (agency-client).
- The contractor’s working practices should mirror the terms of the contracts. They should show that he/she works in a manner more akin to a self-employed individual than to a permanent staff member, which could indicate that he/she is a ‘disguised employee’ (as per the HMRC term).
- We would recommend using a specialist IR35 contract review provider before starting a new contract. They will be able to negotiate contract clause changes with recruitment agencies, as well as providing an opinion as to your risk of an IR35 investigation.
Key clauses within written contracts
Although there are numerous factors which will establish whether or not a worker is caught by IR35 or not, there are three key employment tests which provide the strongest indicators of a worker’s true IR35 status.
- Substitution – if you have the genuine right to provide a substitute if you are unable to carry out your contract work.
- Control – are you under the direction, control and supervision of your client?
- Mutuality of Obligation – does the client provide regular work to the contractor, and is it regularly accepted? Does the worker expect to be provided with more work when the contract in question expires?
IR35 contract template downloads
Qdos Contractor has several free templates which may be useful to contractors, including model contracts for contractor to agency, and for contractor to client (if working direct).
Contracting directly with your end-client
If you are contracting directly with your client, it is important to have a written contract in place. If you do work for a client on a verbal basis – although this may constitute a valid contract, it is much more difficult to prove your employment status in the event of an HMRC IR35 enquiry if you don’t have a written contract for services in place.
Contracting via a recruitment agency
Most contractors work for clients via recruitment agencies. In almost all cases, your agency will provide you with a draft written contract prior to starting a new role. This template should give you an example of what will typically be contained within the contract, and may highlight things which may be missing, or could be improved. It is worth noting that the ‘upper level’ contract between the agency and the client may also impact your IR35 status.