If you are a contractor in the public sector, then you are aware that there are changes taking place. However, I want to tackle some misconceptions. Many people believe that all public sector contractors will be affected by the change…This is not correct.

The IR35 reforms from April 2017 require public sector organisations that hire contingent workers such as contractors to effectively evaluate their IR35 status and ensure compliance. IR35 has been around since 1999, however the reason it is such an issue from April 2017 is because the public sector organisation hiring are now responsible for the IR35 screening (as opposed to the agency). The problem with this is that the public sector are risk adverse. As a result they are likely to gravitate towards making all contractors fall inside IR35 (regardless of whether they are genuine contractors or not)

So here is how you can overcome IR35,

You can re-negotiate your contract with your public sector body. With regard to IR35, it is worth bearing in mind that the contract must reflect the specific terms of the engagement, which are invariably unique. In order to be outside IR35, those terms must in turn reflect an engagement that would not be deemed as employment under the established case law.

The following are some key points to look out for in your contract:

1. Nature of Work and Schedules– First and foremost, the work must be described accurately and for IR35 purposes should be either a project or projects, or have some form of deliverable that is consistent with a discrete piece of work that is not ongoing. It is fundamentally important that the description in the contract is accurate, as you will be contractually bound to deliver the stated services.
2. Right of Control– Old style standard agency contracts usually contain a clause requiring the contractor to be under the direction, supervision and control of the client. Such a clause should always be avoided, leaving method and manner of performance for the contractor to decide.
3. Substitution– The substitution clause has received much publicity as the panacea to cure all IR35 ills. Whilst this approach is simplistic it is an important clause to look out for in a contract. The right need not be unfettered (not many clients will realistically agree to an unfettered right) but must be valid. Caution should always be exercised before relying on a substitute clause to avoid IR35, unless substitution has actually taken place. The relevant clause must be a genuine right to substitute and many clauses we have seen fall well short of what is required.
4. Mutuality of Obligation– An ongoing obligation to provide work and do work provided should not be an explicit or implicit term of the contract. Further work should be under a separate contract. Provisions enabling the client or agency to extend without the consent of the contractor should be avoided.
5. Termination– Generally a ‘contract for services’ (i.e. which is not likely to be affected by IR35) is for a specific project and will end when the project is completed (or alternatively if there is an early breach of the contract). It is therefore advisable to link the contract duration to timeframes for completion of the actual services.
6. Financial Risk– Running a genuine business enterprise appropriate to a contractor intending to operate outside IR35 usually involves taking on a level of financial risk. Financial risk can exist in many ways such as incorporating indemnity provisions, agreeing to fix faulty work or maintaining professional indemnity insurance.
7. Payment terms– Payment terms should reflect those that exist between commercial companies rather than those that exist for employees, so payment should always be contingent on invoices being issued. Many professionals and sole traders charge an hourly or daily rate without compromising their self-employment status, so whilst fixed price contracts are ideal, payment based on time can be acceptable.
8. Exclusivity– It is entirely inappropriate for an independent contractor to be unduly restricted from providing services for other clients.
9. Equipment and Premises– If the working arrangements are such that elements of the work are to be performed from the contractor’s own premises then it is clearly inappropriate for the contract terms to stipulate a fixed client site as the sole location for performance of the services.
10. Intention– As the intention of the parties is not to create a relationship of employer/employee, a clause should confirm the independence of the parties and that there is no relationship of employment. To support this intention it is important to avoid language and concepts usually only found in an employment context such as procedures for notification of absence, references to misconduct or overtime.

Under IR35 it is all the circumstances of the arrangements, including the working practices that are relevant. The strongest evidential source for demonstrating the actual working practices will usually be a written agreement between the relevant parties, but only if this can reasonably be relied upon as an accurate representation of the facts. It is important to remember that there are continual changes in the law and specialist legal skills are required to review, draft and negotiate contracts effectively to accurately reflect the actual working practices. For this reason it is often best to engage specialist contract draftsman with IR35 expertise to ensure commercial risks are mitigated and IR35 issues are properly and accurately dealt with.

We will tackle each one of these key points along with case studies in the coming weeks, so look out for it.

Sign the petition:

Sign the petition to stop the new IR35 rules for public sector workers.

https://petition.parliament.uk/petitions/182245/sponsors/LwEl0YtI37VljSuD0BrV