At the top of the list should be tax, and in particular making sure your business complies with IR35. IR35 effects everyone who is self employed and should not be ignored.
In 2000 a specific piece of legislation – referred to as IR35 – was brought in designed to stop an employee from leaving their permanent job and then returning as a contractor to perform their old role in a bid to avoid paying tax and National Insurance at the higher rates. For example a HR advisor could resign from their job on a Friday as an employee then return on the Monday as a contractor with exactly the same role but just working under their own Limited Company. If you don’t have your own terms in place then it may be that you are working under your clients terms and you should get a professional to read over them.
Remember if that contract falls inside IR35 it will be you that is penalised with fines.
Determining whether IR35 applies to your contract is a complex matter. However there are three key principles that will determine your IR35 status and what you should look out for if you are agreeing to your clients terms:
It is important to remember that if you are under investigation, HMRC will more than likely want to see your contract and your working practices must absolutely reflect what is in your contract. You must provide clear evidence to support your status as a self-employed professional.
Contractoruk.com said that if challenged ‘the overall picture will be made up by how the contractor operates on a day to day basis – the reality of which must be reflected by the contract. A common argument from HMRC to discredit the contract is that the contract has been “bought off the shelf” or has been copied from another contract and does not therefore reflect actual terms. Another reason why copy and paste and templated documents is a ‘no no’.
I would recommend having a set of business terms written bespoke to you and the client is then bound. This is a huge step in the right direction to ensure your working relationship does not fall inside IR35.
This is how the law is now… From April 2020 every medium and large private sector business in the UK will become responsible for setting the tax status of any contract worker they use and not the other way round.
If you are unsure about your IR35 status give us a call and we can help with an IR35 Contract Reviews, Business Terms or advice.