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IR35 case study - trying to renegotiate an agency contract

Over the years since IR35 was introduced in April 2000 we have received many emails from contractors who have had both good and bad stories to tell us about trying to resolve IR35 issues with their contracts. Here we share the details of one who successfully managed to get their contract changed - and you can too!

A contractors IR35 experience

Here's what one contractor told us about their experience, in their own words:

I have just started a new contract and went through XXXX Ltd. I was not very happy with the result though.

I was assured the company had a legal team that would ensure I got a customised contract before I agreed to take the role on that basis (I had two other offers to choose from at the time).

But, when I turned up to sign the agency contract I found it was a very thinly disguised standard contract ("contractor" changed to "Service Provider", "timesheet" changed to "worksheet") and a substitution clause added. What's more the assignment schedule quoted a standard working commitment of 37.5 hours and a fixed 12 week length, a 28 day notice period and went on to say that the assignment schedule overrode anything it conflicted with in the contract.

Time to negotiate IR35 terms

Considerable negotiations followed, I offered to pay for a lawyer for a customised contract, and they offered to change a few more non-critical words to different synonyms etc. The frustrating thing was the client would have been happy to see a contract that was project based, like the work. They don't like the idea that I can walk out after twelve weeks even if the project isn't finished anymore than I do.

The agency put all the blame on the client saying they were the ones who were inflexible when I know this wasn't the case. The agency put a very good face on everything, was helpful to a point and found me a good contract, but it seems their strategy is to spend all their time and effort talking contractors out of anything that alters their standard contract rather than putting that effort towards a constructive attempt to alleviate the problem where possible.

After a couple of days of trying to make some headway I went ahead with it anyway. As it happens the contract was lucrative enough that I can treat it as a fail-IR35 anyway but the frustrating thing is if the agency wasn't involved I would have negotiated pass-IR35 working conditions without any problems.

After this experience I decided I don't need the middle-men anymore. Next time I am going to buy/develop my own contract with a lawyer and target clients directly. That is the thing, more than any other, that will make my company a business and not a disguised employee anyway.

Contractor Calculator viewpoint: What IR35 lessons can be learnt from this?

Firstly, bear in mind that this guide story has been updated and revisited almost 15 years after it was first written. What's interesting to notice is that all those many years ago the main focus was on the actual wording of legal contracts.

However, only a few years after IR35 became law HMRC started focusing on actual working practices and ignoring the wording of actual legally binding contracts - they argued that contracts had become a paper exercise and not an accurate reflection of the reality of the relationship. This was a reaction to the entire market basically putting substitution clauses into their contracts and passing IR35 with ease.

On reflection this contractor could have had their working practices reviewed and provided that they passed IR35 it would not have mattered what the contract actually said, as they would be able to argue in court that the working practices indicated they were outside IR35.

Whilst agencies have come a long way in the last 15 years many are still reluctant to change their contracts, simply because they cannot afford to. Many of them use off-the-shelf contracts provided by specialist law firms.

So, how can you beat IR35?

The answer is: you absolutely must maintain an IR35 compliance file and collect evidence during the contract that indicates you are outside IR35. And here's where we tell you exactly how to do this.

Published: 17 September 2016

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