Agreement help please?

[Amelia1909]

Hi all

We are looking at using a consultant in a business for up to 3 years. He has his own company. We are not using the whole company just him.
We have sent him a consultancy agreement with a rolling one month deal to avoid him being 'employed' and HMRC getting their knickers in a twist. We have included intellectual property clauses, termination clauses etc and he has spat his dummy out saying its all wrong and we should have a commercial agreement simply stating what we'll pay him, that we agree to pay him and that anything else makes him an employee..????!
Any thoughts / experience in this area..
We're actually trying to protect our business and offer him some protection too...
thanks in advance

Yes, he'll get caught by ir35 with the agreement you suggest. Most are paid on a daily rate.

Thank you for your reply. Excuse me ignorance / what is the ir form you mention?
He is being paid £3500 a month for 36 months

My ignorance I mean!

IT 35 is basically anti avoidance rules stopping someone from offering their services through a ltd company

In your situation it is not up to you (or him) to decide if he is self employed or not it is dependent on the facts

Can he set his own hours,refuse to do work ,work for others
If not ,and given he has a 3,year deal HMRC could well consider him to be an employee
And if so the risk is yours They will come after you for the Employers N I

You should take advice on this

IR35 is about tax. It is designed to stop people reducing their tax bill by supplying their services through an intermediary company when they would otherwise be employees. If he is caught by IR35 he will have to pay more tax and NI. Earlier this year a BBC Look North presenter was ordered to pay £420k tax under IR35.

You need to get your proposed agreement reviewed by a lawyer who specialises in employment law and possibly also by an accountant who understands IR35. I am not an expert so I wouldn't want to say definitively that your proposed agreement would fall foul of IR35. But it is certainly possible that your proposed agreement is not protecting either you or him.

If he only works for you and has a 3 year contract then he is in danger of coming under IR35 and being considered an employee
The fact that you are only using him rather than the whole company makes it worse

Best advice is to pay him on a daily rate. If he is working solely for you for 36 months the chances are he will be classed as an employee which means he could fall foul of ir35. To avoid this he needs to be able to e.g. send a substitute to carry out the contract, have autonomy on when and how he carries out the work by setting his own hours, change his place of work, work for other people during the period and a few other things. It's a fine line. Personally I wouldn't worry too much in your position because most of the risk is his, although as another p said you could be held liable employers NI contributions. There is quite a lot of info if you Google ir35. I know lots of contractors who don't get caught but probably should and some who do accept that they need to pay both employees ni and employers via the company plus corporation tax etcetera. Sounds as though your contractor knows enough about it to know what he's doing but there is of course a moral aspect to this.

Great Point about ir35. Thank you. He insists the agreement we have had drawn up by an hr consultant is wrong???? He keeps saying it is a contract between companies but he is the company. In one clause he has been asked to 'keep the client informed of progress when asked to' his comment is 'there is no point putting this in the agreement as it makes it an employment contract'. I don't agree. There is an anti bribery clause, he comments 'no need for this it is dealt with within the law'. Where it states he is expected to comply with company policies/H&S etc he states it is an employment clause. Where we state he is an independent contractor not an employee etc he states 'this is counter productive and implies there might be a chance I am'. Under fees he wants the total contract (£126,000!) value added with an agreement to pay over 36 months. But doesn't this tie the company in to pay the total amount even if the agreement ends early. And on and on and on it goes!!!! I REALLY appreciate your comments and help. Thank you so, so much

No, he is not the company. He may be the owner of the company, its only director and its only employee but he is still not the company. Legally the company is a separate person. He is absolutely right that this should be a contract between your company and his company, not between your company and him personally.

I have to say that I agree with some of his points regarding your proposed contract. I stand by my previous advice that you need to get this looked at by a lawyer who specialises in employment law and an accountant who understands IR35. If you don't it is quite possible that, far from protecting your business and the consultant, you are actually leaving both parties badly exposed.

Under fees he wants the total contract (£126,000!) value added with an agreement to pay over 36 months.

Yes and I certainly wouldn't agree to that clause. From what you say, you would be wise to have it checked over by a solicitor who can go through the contract with you. No offence but it appears he is an old hat at negotiating terms and you are newish to it, so cover your back by taking advice. Sometimes you realise during negotiations this might not be the right person after all, so don't forget you can always walk away!

I’m not a lawyer but both me and DH have been Contracting for a few years so I’ve seen quite a few of these contracts
A daily rate is more usual and again mitigates IR35 but even so I think if you are his only client for 3 it might still be risky. DH would probably risk it but mostly because we both work together and so even if he onjy had 1 contract in 3 years I would have more so as a company we have multiple clients, but even then it’s not watertight ( which is why we have Insurance )

He sounds right and the hr consultant sounds wrong.

The fact that you've sought an hr expert says a lot - it's not an hr issue. Hr deal with employees and he isn't one. Would you employ an hr expert to draft a contract between a builder and yourselves? Or between a catering supplier and your company?

Returning to this...

In order for him to be self-employed he needs to be able to decide what work he does and when, where or how he does it. Some of your proposed clauses appear to undermine that, suggesting he is actually going to be an employee who must do what you tell him to when you tell him. I agree with him that the fact you feel the need to state he is an independent contractor may suggest to HMRC that there is some doubt about it.

Regarding fees, it is a big plus for him being self employed if he can agree a fixed fee for the work which doesn't depend on how long it takes for him to finish the job. If you want to reduce the amount just because he finishes early that suggests he is really an employee. You should, of course, be able to reduce the amount if the work is unsatisfactory or late. And he should be responsible for fixing any unsatisfactory work without charging any additional fees (another indicator that he is self employed). Note that it is not essential that he is paid a fixed fee but it is harder to prove to HMRC that he is self employed if he isn't.

But the most important point which you appear not to have grasped is that this is a contract between your company and his company. It is not a contract between your company and him personally.

I have not read your contract and I am not an IR35 expert, but the things you have posted here suggest to me that he is right. The HR consultant has come up with a contract of employment, putting both your employer and this consultant at risk of being caught by IR35. You may also be at risk of giving him full employment rights.

I agree with titchy that this is not an HR issue.

Back to the drawing board on this one I think. Thank you all hugely for your comments and advice. We want to do the right thing for everyone and you're right - an hr consultant is not the person we need to look at this for us.
Again you're right that this is the first time we have done this!
I will contact a solicitor to get a new draft drawn up.
Thank you again

Leaving aside if he is self employed or not it seems he owns a limited company through which he does some work and he is going to provide some services to you as a sole trader. is that correct or will his company be invoicing your company? Whose name - his company or his personal name will be on the invoice.
I do a lot of genuine consultancy agreements and this is the first question - who is contracting. Plenty of these people are genuinely self employed.

i don't agree with most of his comments - clauses against bribery are in loads of consultancy and all kinds of other contracts. he is just trying to get out of having those obligations imposed on him. He may have a point that the precedent you are using is between two limited companies and in this case he wants it between him a sole trader and your company and if you do make that change they you probably want him separately to agree to assign you his IP etc directly. It is not a very complex point. If A and B are companies and contract with each other you might well want to say in the agreement company A agrees to give you the services of Mr A who is good at these things not his office junior. if the contract is direct with Mr A not his company then that does not apply and similar issues arise if IP is generated although if he is an employee of his own company and the company contracts with you then the employee IP will vest in his company which then his company transfers to you.

None of this is particularly difficult except the point people raised above many cases where someone works only for one person for 3 years it is very very likely they are not self employed whereas if I my firm for 3 years to provide work to a client along with all my other clients it may not be a case of employment.