Drafting a direct contract to avoid IR35

Alan

You should always seek professional help in drawing up such a contract. You could also join the PCG and use their model contracts as a starting point – they have a model direct contract. The following are just a few pointers to key issues. You will have to consider the specific circumstances of your engagement.

Matters to consider include:

First remember that the contract should reflect reality and should be a business to business contract.

If possible it should be a contract for delivery of specific output – completion of a project or task – not just the supply of a resource for a period of time. Avoid anything that suggests that your company is engaged for an indeterminate period to do whatever tasks the client comes up with.

If possible a fixed price contract is a strong indicator of self employment but that has to be balanced with the ability to price such a contract without taking undue risks.

Substitution – ideally you need a right of substitution. It is acceptable for the client to have a right to reject a substitute that does not have appropriate qualifications and experience. But any greater veto might weaken the right of substitution to the point that the Revenue argue it is not really a right at all. Ensure that you remain responsible for paying the substitute.

Avoid the client having the right to supervise, direct and control the worker supplied by your company. Clients can ensure that their needs are met by properly defining the contract outputs and standards to be achieved.

There are lots of other issues that have some bearing on the contract status but are rarely determinative on their own, such as whether the work is to be done on site and with the client’s equipment or the use of timesheet as a way of logging progress or payment by the hour. If possible retain as much flexibility as possible on issues like working on the client’s site or working set hours.