Freelancer's Question: I've just been offered a piece of work
from an organisation I know well, and who I've worked with on projects
for a while. They need some work doing for the short-term - I know what
to do, they know what they want to me to do, and everyone's clear on all
that.
But on first glance, the contract seems to present major IR35 issues
(such as substitution, mutuality of obligation) and I want to get it
checked properly before signing. However as that process will take some
time, with both sides needing to review, is it acceptable to simply get
on with the work, in the absence of a signed contract? After all, it's
them buying a service (I have a purchase order from them in writing) and
me charging them for that service through a monthly invoice. So is it
safe to proceed without the paperwork in place, or should I wait for the
final, formal, signed contract?
Expert's Answer: If there are difficulties with the offered
contract, it is best to avoid signing it as it will only make the
situation worse. For this reason, proceeding under a purchase order may
well be a viable alternative in the short term. As HM Revenue & Customs are often keen
to state, IR35 is assessed primarily on the realities of the
relationship anyway, not the written contract itself.
Despite this, to state the obvious, even without a formal written
contract, a contract will still be in place because, as you say, they
buy the services and you/your company completes them. Any written
contract is at best only evidence of the nature of the relationship. If
you proceed without a written contract the terms of any such contract
will be implied. There are however difficulties with this approach.
Firstly, the absence of a written contract is likely to mean your
business operations will be more intensely inspected by HMRC, as they
attempt to establish the nature of your relationship when assessing
compliance with IR35. Also the absence of a contract means any
assessment of IR35 is less likely to go in your favour. For example,
contractors rarely use a right of substitution. Without written evidence
of this right or an example of actual substitution, HMRC will claim it
does not exist. The same applies for mutual obligations. This means the
usual protections against an adverse IR35 assessment may not be
available unless they are blatantly obvious in the way you work.
Secondly, even though you did not sign it, it could be argued that the
original contract represents the nature of your relationship and sets
out the agreement to provide services going forward. This implied
acceptance could mean you suffer from the IR35 issues you sought to
avoid in the original contract. You would need clear evidence in writing
that this contract was rejected and that you are proceeding on the
basis of a purchase order alone.
Thirdly, and to answer your directly, this approach is not safe.
Operating without a written contract means the terms of your
relationship may not be clear. If anything goes wrong, you will be
exposed. This is true in areas such as the terms and dates for payment,
insurance, liability for your actions, ownership of any intellectual
property, notice and reasons to terminate, etc. As a minimum, you would
need to be able to show evidence of any implied agreed terms through
emails or letter to stand any hope of being protected should the client
not pay, throw you out, claim ownership of your know-how, etc. But even
then this may not be enough. There will of course be commercial
pressures on you and your client to get the job done which may force
both parties to 'play fair' if there is a dispute before the proper
contract is signed, though relying on an agreeable response is a very
dangerous leap of faith.
The expert was David Buckle, head of the employment practice at Cubism Law.
Aug 10, 2010
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