~7 min read
Alright, let's talk contracts. When you're a contractor, your contract isn't just a piece of paper – it's a key piece of evidence in the eyes of HMRC when they're looking at your IR35 status. Sometimes, buried in the jargon, there can be little (or big!) red flags that might suggest your engagement looks more like employment than a genuine business-to-business service. Spotting these early can save you a heap of trouble. Think of this as your IR35 contract MOT – a quick check for potential warning signs!
Watch Out! Red Flags in Your Contract & Working Practices
Remember, IR35 isn't just about what your contract *says*; it's about the reality of your working relationship too. But these contractual red flags are definitely worth keeping an eye on:
- Too Much Client Control: Does the contract give your client a lot of say over *how*, *when*, and *where* you do your work, beyond just specifying the project deliverables? If they're dictating your daily schedule, specific methods, or supervising you like an employee, that's a big red flag.
- No Genuine Right of Substitution: This is a biggie for IR35. A genuine Outside IR35 contract should ideally allow you to send a suitably qualified substitute in your place (at your own expense). If the contract says you *must* do the work personally, or if any substitution clause is so restrictive it's practically impossible, that's a warning sign.
- Hints of Mutuality of Obligation (MOO): Does the contract imply an ongoing obligation for the client to provide you with work, and for you to accept it, beyond the current specific project? Things like fixed hours regardless of workload, or rolling contracts without a clear end project, can suggest MOO.
- Being 'Part and Parcel' of the Team: If your contract gives you a company email, access to employee benefits (like staff canteen or gym), a line manager in their structure, or requires you to attend all general staff meetings, it can make you look more like an employee than an external consultant.
- No Real Financial Risk: Businesses take financial risks. If your contract means you get paid for your time regardless, and you're not responsible for fixing mistakes at your own cost, or you don't have your own business insurance, it weakens an Outside IR35 stance.
- Client Provides All Equipment: While not a deal-breaker on its own, if the client provides all your essential equipment (laptop, software, tools), especially if you're working on their premises, it can contribute to an employment picture. Ideally, you'd use some of your own gear.
- Vague or Open-Ended Deliverables: An Outside IR35 contract should ideally be for a specific project with clear deliverables and milestones. If it's just for "general consultancy" or "providing services as required" without much detail, it can look more like a role than a project.
- Lack of Business-Like Operations: Are you operating like a proper business? Do you have your own website, business cards, professional indemnity insurance, and market your services to other clients? If not, it can be harder to argue you're not just a 'disguised employee' for this one client.
- Employee-Like Clauses: Watch out for clauses that sound like they're lifted from an employment contract – things like specific notice periods (beyond what's needed to complete the project), clauses about holiday pay, sick pay, or disciplinary procedures.
- Unnecessary Client Control Over Hours/Location: If the client dictates your exact working hours or insists you work from their office when the job could genuinely be done elsewhere or more flexibly, this can point towards control.
Spotted a Red Flag? What Next?
Don't panic! One red flag doesn't automatically mean you're doomed to be Inside IR35. HMRC looks at the whole picture. But if you see several of these, it's definitely time to act:
- Get a Professional Contract Review: This is often the best first step. An IR35 specialist can look at your contract and working practices and give you an expert opinion.
- Talk to Your Client/Agency: If there are clauses that don't reflect the reality of how you'll be working, or that could be problematic for IR35, discuss them. Sometimes contracts can be amended to better reflect a true business-to-business relationship.
- Document Everything: Keep records of your working practices, correspondence with the client that shows your independence, and any steps you take to operate as a business. This can be invaluable if HMRC ever comes knocking.
- Consider IR35 Insurance: For peace of mind, particularly if you're operating Outside IR35, IR35 insurance can cover legal costs and potential tax liabilities if your status is challenged.
Remember, being proactive about your IR35 compliance is key. Understanding these potential red flags helps you protect yourself and your business.