If you`re a contractor or freelancer working in the UK, chances are you`ve heard of IR35. The legislation, originally introduced in 2000, is designed to prevent workers from avoiding tax by working as contractors while acting as employees. Essentially, it means that if a contractor is deemed to be working as an employee, they will be taxed accordingly.
Recently, the government made significant changes to the IR35 regulations that have caused a stir in the contractor community. From April 2021, medium and large private sector companies will be responsible for determining whether contractors are inside or outside IR35.
This shift in responsibility means that contractors may be affected, regardless of their own opinions on their status. As a contractor, it`s crucial to understand how these changes could impact you and ensure that you have a clear service agreement that reflects your status.
What is a Service Agreement?
A service agreement is a legal document that outlines the terms and conditions of a service being provided. For contractors, it`s an important document that sets out what work is being done, when it will be done, and how much will be paid for it. A service agreement can also be used to outline the contractor`s status and prevent any confusion over IR35 rules.
How to Write a Service Agreement That Reflects IR35 Changes
With the changes to IR35 coming into force in just a few months, it`s important that contractors have a clear service agreement that reflects their status. Here are some tips on how to write a service agreement that reflects IR35 changes:
1. Define the Relationship
One of the most important things to include in a service agreement is a clear definition of the relationship between the contractor and the client. It`s important to make it clear that the contractor is working as a self-employed individual and not as an employee.
2. Outline Deliverables
The service agreement should include a detailed description of the work that the contractor is being hired to perform. This should include specific deliverables, timelines, and any other relevant details.
3. Include Payment Terms
The service agreement should also include details on how the contractor will be paid, including the agreed-upon rate and payment terms. It`s important to make sure that payment terms are clear and that invoices are submitted in a timely manner.
4. Clarify IR35 Status
Finally, the service agreement should include a clear statement of the contractor`s IR35 status. This should make it clear that the contractor is working as a self-employed individual and is outside of IR35.
In summary, if you`re a contractor in the UK, it`s essential that you have a comprehensive service agreement that reflects the recent changes to IR35 regulations. By defining the relationship, outlining deliverables, including payment terms, and clarifying your IR35 status, you can protect yourself and ensure that you`re paid fairly for the work you do.