The simple answer is yes – a contract review can have a significant bearing. The contractual terms are one of the very first pieces of evidence which HMRC will request in an IR35 enquiry, and ensuring that you have an IR35 compliant contract in place which addresses the key IR35 tests will ensure that the correct tone is set from the start.
It also helps to answer the question which often appears on HMRC’s opening letter which asks whether the possibility of IR35 applying has been considered;
“Will you please also tell me whether you have considered the possibility of the company being subject to what is commonly referred to as the lR35 legislation and the date you considered it? lf you have, and have concluded that the company is not subject to that legislation, then please explain to me the basis upon which you arrived at that conclusion.”
HMRC take a dim view of any contractors who have operated outside of IR35, without properly considering why, and in the event of an IR35 enquiry HMRC will attempt to impose penalties in such circumstances.
Putting in place a compliant contract and negotiating important changes, can also set the blueprint for the entire engagement. Taking the trouble to make sure that the contractual terms are appropriate, will mean that its more likely they will reflect the true reality of your working practices, since in many cases the agency will have to agree upon such changes with the end client before they can be implemented.
In a recent IR35 enquiry, the client we were defending had contractual terms which indicated a requirement for Professional Indemnity Insurance, which at the time our client did not have. This led HMRC to question the authenticity of the entire contract.
Once the contract and working arrangements have been reviewed, preferably prior to starting a contract, asking the end client to sign an agreement to your working practices, (often referred to as a Confirmation of Arrangements document), will help to remove any ambiguity or doubt over the intention of the contract.
This will help to expedite the IR35 enquiry too, as HMRC will have a point of contact, and you will have some comfort that the end client will support your status as an independent contractor having signed in agreement to your working practices.
For what is usually a small outlay, a contract review is invaluable and could save thousands in the long run. It will provide the basis for a defence in the event of an IR35 enquiry and will make it very difficult for HMRC to impose penalties where the proper considerations have been made.
Qdos Contractor are currently running an offer for 15% off all of their contract review products (also applies to turnaround times) Simply enter code REVIEWMYCONTRACT at checkout – valid until 31st October 2017.