Use of Suitable Contract Templates

Use of Suitable Contract Templates By Clients


Whether or not a worker uses a PSC (or any other entity) as an intermediary, if they are trying to establish arrangements which HMRC, a tribunal, or any other body will accept as not amounting to them being an employee, they will need to consider the totality of the relevant arrangements, facts and circumstances. 

Where a PSC or other is involved, those circumstances will include the way in which the contract is implemented, and all arrangements between the PSC, the client, and the worker.

Where no PSC or other intermediary is involved by a worker, those circumstances will include the way in which the contract is implemented, the conduct of the client, the worker, and anyone the worker engages to do any of the work for them; and all related arrangements between them.

Although all facts and circumstances have to be taken into account, nevertheless, a carefully worded contract ensuring the independence of the worker is a key starting point, and we have provided numerous template documents in our Business and Employment folders for this purpose. Some of those templates are forms of agreement between a client and a worker. Some are between a client and an intermediary. In either case, the templates aim to reduce the risk that the worker might be deemed to be a de-facto employee rather than a self-employed contractor in the context of employment and tax law. Where the worker uses an intermediary, the templates also aim to reduce the risk that IR35 will apply with the effect explained in the information page Working Through an Intermediary Company and IR35.

1. Other tips

Where a PSC is involved, to reduce the risk that IR35 will apply, there should be a suitable contract between the PSC and the client which has the features of a contract for services, and not those of a contract of employment. Therefore, if possible, it should avoid creating an obligation to provide and accept work, it should provide for little or no ability for the client to control the PSC, it should provide for completion of the contract to consist of carrying out a stated quantity of work rather than working until a stated date or the end of a stated period of time, and payment should relate to the quantity of work completed, not to the period of time worked. If payment clauses also provide for bonuses or penalties, that might also be helpful. The PSC should if possible also provide most of the equipment needed for the work. It will in particular help to avoid IR35 applying if a broad right of substitution of the worker is included as part of the terms agreed, and if that right is then actually exercised by the PSC.

There should also be a suitable contract between the PSC and the worker which is as much like a conventional employment contract as possible. If possible, to reduce the risk of IR35 applying, that contract should avoid the worker being required to do work for only one client, payment to the worker should be stated to be for the PSC to decide (perhaps as a regular realistic amount of salary) rather than stating that the worker is to receive amounts connected to what the client pays the PSC, and the contract should provide for the PSC (not the client) to have control over the work and when and how the worker carries out their work.

In general, you should take action to determine the details of the arrangements and document them appropriately for purposes of IR35, so that HMRC will be satisfied that claimed self-employed status is genuine rather than merely a tax-driven device or an attempt to avoid employment protection rights.

2. General

IR35 is a complex subject and so you are strongly recommended to take tax and legal advice before using any of our template documents or implementing any other arrangements.

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