The importance of a Contract Review
Contracts are binding legal agreements between two parties and are the best way to protect yourself as a self-employed person when undertaking work for a client. A vocal agreement will only leave the door open to expensive misunderstandings.
Why do you need a Contract Review?
When you put together a contract with a client it’s essential it’s then reviewed, for three main reasons:
- To ensure your contract fits within IR35 regulations (IR35 is a tax legislation designed to tax "disguised employment" at a rate similar to employment)
- To ensure your working practices mirror the terms and conditions detailed in your contract
- To check the terms of your agreement are compliant with employment law and meet your requirements
It is crucial that you take the necessary steps in protecting your hard-earned income, by getting each new contract reviewed by a professional.
No review comes with a risk
It's vital that you understand exactly how your contract affects your IR35 status. IPSE has always recommended that after you win a contract, you make sure it is reviewed by experts to ensure that you have the best defence you can if HMRC does come calling.
The threat of IR35 often lingers in the back of a freelancers mind. Should HMRC ever investigate, the first thing they will ask for are copies of all your contracts relating to a specific accounting period, as well as any evidence and information supporting your opinion of your status. If you have not had your contract reviewed, you risk being IR35 caught.
Leading consultancy Abbey Tax provide IPSE’s comprehensive and independent contract review service. Rebecca Walker is a Tax Consultant from Abbey Tax, and stresses how important it is to know your IR35 status: “Incorrectly treating your engagement as outside of IR35 risks a bill for unpaid tax and National Insurance Contribution (employee’s and employer’s) on the income from the engagement.
“Should you be unlucky enough to be subject to an enquiry, HMRC can also levy a penalty of up to 30% of the tax due if you are deemed not to have taken reasonable care. This can be mitigated by having had a IR35 review, demonstrating you have undertaken due diligence in establishing your IR35 status.”
IPSE’s Contract Review
IPSE’s IR35 Contract Review Service provides you with a detailed report offering any appropriate amendments and improvements to the contract wording, as well as considering the day to day working practices of the engagement and concluding with a definitive IR35 'pass' or 'fail'.
Rebecca continues: “Having a contract reviewed and ‘passed’ as outside of IR35 by IPSE’s specialists not only gives you peace of mind that your tax position is correct, but also gives you the option of insuring the engagement against the tax loss should HMRC reclassify the engagement as disguised employment.”
For more information on IPSE’s Contract Review Service, please click here.