Originally called the Intermediaries Legislation, but better known as IR35, this law was introduced towards the start of 2000. The purpose of it is to prevent tax evasion through the use of personal service companies. This is done, not by identifying those doing so, but simply by taxing such companies (which do have a legitimate purpose) the same as individuals are taxed.
Obviously, people have not liked this, especially freelancers who frequently take considerable risks in their business. Almost all freelancers are self employed, and so can easily be caught out by this new tax. A contract that is well phrased and clear will be fine, but the smallest mistake in word choice can be enough to sink you.
The easiest way to solve this is to get an expert to review the contract. There are plenty of experienced lawyers who would be willing to look it over, and the average price is just 120. Considering how important it is that you get this right, and what you will be charged if you get it wrong, it’s well worth the price.
So let’s go over some of the key factors that you need to consider. Here are a few questions that may help you determine if your contract is likely to pass.
1. If you fail, does your company bear the financial risk of it? [Yes = Good]
2. Will your sound management be profitable for your company, in performing the contract? [Yes = Good]
3. Is your company permitted to send alternative personnel? [Yes = Good]
4. Will the risk of bad debts be born by your company? [Yes = Good]
5. Is your contract a “Contract for services” rather then a “Service contract”? [Yes = Good]
6. Will you receive sick or holiday pay? [no = Good]
7. Is the relationship between you and your client one of “master and servant”? [No = Good]
8. Do you and your client have mutuality of obligations? [no = Good]
For a UK freelancer, if all of the above seems to be in order, then you have a good chance of being unaffected by an IR35 investigation. However, you need to consider not only what is written in your contract, but also how it is written. Even if all of the contents of your contract are in order, a badly phrased paragraph could still easily sink you.
Thus, the first thing that you need to do is to have your contract reviewed by a professional IR35 contract reviewer. An expert should be able to give you some good advice about any parts of the contract that need to be changed. If you do need to change something, then make sure you get it changed before you sign!