It might be stating the obvious, but the purpose of any contract is to set out the terms on which freelancers operate. Even if there is no contract, one is likely to be implied and, to paraphrase HM Revenue & Customs, the realities of the relationship will dictate the specific terms.
Confirming the nature of a commercial relationship is always a good idea. However sometimes the way people use these contracts can backfire. The most common mistakes when approaching freelancer contracts generally are:
1/Using someone else's terms
It is not uncommon for individuals to 'borrow' terms from other freelancers or businesses. Aside from the general copyright issues of taking someone else’s contract, standard terms for one project may not reflect the requirements of another, so beware. I once came across a photographer working under an IT contractor’s freelance terms which passed over the copyright of an entire portfolio to the client because he failed to change its terms, costing him hundreds of thousands of pounds!
2/Using a 'boilerplate'/template
There are a number of standard 'boilerplate' contracts out there, usually available on the internet at little cost. The majority state they are IR35-compliant. When using these contracts it is tempting to leave them unaltered because the seller claims they have been “tested”. Anyone who has been negatively assessed under IR35 will tell you that, as stated above, HMRC will look at the realities of the business relationship, not just the contract. The less the contract reflects the relationship, the more the “realities” are looked at - actually leaving you more open to an in depth investigation, costing your time and your money. Any contract used must reflect the specific services and terms of that situation otherwise disputes will arise. Boilerplate contracts should be the start of the drafting process, not the end.
3/Using no contract at all
The Conduct of Employment Agencies and Employment Business Regulations 2003 state that, where a freelancer is supplied through an agency, any terms agreed must be in writing. Despite this, and normal common sense, many freelancers still fail to agree and sign any written terms before starting a project. The problems with this are obvious. Few, if any, protections will be implied (i.e. there will be no notice to terminate, no specific timing for payments, etc), the client can argue what was agreed and HMRC have a free hand to imply the actual terms of the relationship when assessing tax.
4/ Not keeping contracts up-to-date
A further common mistake is to continue to work under an expired contract. This will often raise employment status and tax issues, especially if the freelancer works for a significant period, and will often have worse ramifications than having no contract at all.
5/Amending contracts on a whim
Lawyers spend years learning how to draft contracts so be cautious with any changes you wish to make on a whim. Whilst it may appear straightforward to amend the contracts on a common sense basis, it is common for this to cause trouble later on. I have seen fights over whether an amended per diem clause was inclusive or exclusive of VAT; found payments go unpaid for months due to a failure to include wording for the timing of a payment; seen notice periods left one-sided, and helped freelancers required to work for no money due to a failure to specify work correctly. All of these problems were due to slightly incorrect wording in the contract. Consider that often the cost of a contracts lawyer will be insignificant compared with the costs of the mistake, so it is recommended to have any changes checked.
Even if the general nature and circumstances of your contract are now acceptable and appropriate , the devil can often be in the detail. The most common mistakes that arise on elements of freelance contracts, or within a contract for services, will be revealed on FreelanceUK shortly, in part two of 'What NOT to do with freelance contracts.'
David Buckle, head of the employment practice at Cubism Law.