Should you use an outside IR35 contract template for your off-payroll workers?

Please do not use a template contract with limited company contractors to declare them outside IR35.

These templates can be as dangerous as relying on verbal contracts. In this article, we’ll tell you why.

For more information on IR35 compliance for employers, please call +44 (0) 203 051 9792, email [email protected] or fill out the form below.

Three reasons you should use an IR35 contract template for compliance

1. Contracts don’t always reflect contractors’ actual working conditions

Most IR35 contract templates are based upon standard contractor working templates that have been shown to be legally compliant. Most of the companies offering them will have sought professional advice when putting them together.

We are not impugning either the companies offering these services nor the professionals advising them.

It’s just that you need to consider IR35 as a target that must be continually achieved rather than achieved just through a contract. In other words, you have to think about how you’ll keep a contractor outside IR35 from the start and then codify that in a contract.

That’s because IR35 compliance doesn’t begin and end with the contract.

The contract is only the beginning of proving:

• Genuine self-employment

• The independence contractors having in performing the services required

• The risks contractors take in fulfilling the contract

On too many occasions, we have started work with a client approached by HMRC who are questioning IR35 compliance where we find that the majority of contracts with off-payroll staff were based on templates.

This is often too late.

2. Get out clauses

Most contract template providers’ business insurance will not cover you as the end client if you complete the contract wrongly.

You remain responsible for all mistakes and you remain liable for the financial risks and all costs involved.

3. Recruitment agencies aren’t legal experts nor do they oversee your engagement with contractors post-placement

Unless they’re specifically advised by an IR35 consultancy service like CoComply or an employment solicitor, you should not use model contracts provided to you by a recruitment agency.

We understand that agencies provide clients with contract templates in order to help them out. However, it’s highly unlikely that anyone working within an agency is adequately skilled at creating valid contracts for end clients to complete.

Even if there is someone, they may not have the legal knowledge required to determine whether your contract is watertight.

This exposes you to extreme financial risk if your contractors are judged to be inside IR35 by HMRC when you have declared them outside IR35.

The way IR35 contract templates are completed often fails the key employment tests

The three key employment tests for IR35 are:

• Substitution clause. If your off-payroll workers have to provide a personal service and they can’t send someone else in to do the job, they are likely to be a disguised employee and inside IR35. The existence of substitution clauses in contracts and a contractor’s ability to send in who they like to do the work are integral factors in being outside IR35.

• Obligation clause. As the end client, prior notification must be given to the contractor by you that you want them to perform a specified service not covered in their contract. Your contractor must be under no obligation to accept this work nor participate in any further contracts with your company.

• Control clause. Your contract must show that you have control over the working methods or working arrangements of your contractor. Your contractor must be able to work in a way of their own choosing. If you exert managerial control over contractors who provide services similar to the way you exert control over employees (or you ask contractors to manage salaried members of staff), HMRC will likely deem them an employee. You should also not use a termination clause to bind a contractor too closely to your company either.

Other common problems arise in notice period clauses and payment terms.

How to approach creating a written contract for your contingent workers

IR35 compliance for employers is difficult. It’s tough for decision makers in HR, finance and procurement to make calls on IR35 because it’s a complicated area of employment law.

Now that the risk has shifted from contractors to end clients, many companies and public sector organisations issue blanket and role-based determinations declaring all off-payroll workers outside IR35.

CoComply’s experienced IR35 consultants work with businesses, charities, and public sector bodies to make sure you stay compliant. By helping contractors provide services outside IR35, you make your positions more attractive to them and you save money.

Get in touch with us to find out more.

For more information on IR35 compliance for employers, please call +44 (0) 203 051 9792, email [email protected] or fill out the form below.