Negotiating Your Contract For IR35 Compliance

March 1, 2013


If you’re a contractor or sole trader, it is in your best interests to avoid IR35 tax legislation, whether you’re looking to sign up new clients or in the middle of a contract renewal. If you’re caught by IR35 tax legislation, there’s a high probability that you will see a significant reduction in your net pay. When it comes to the Inland Revenue inspecting your working practices, there are a number of changes you can make to your contract terms to ensure that you’re outside the bounds of IR35.

From the state of the market to financial position of your business, there are many points of leverage you could use to your advantage when negotiating your contract for IR35 compliance. Let’s take a look at some of the factors to watch out for.

Booming Markets

When a market is in need of certain skills, whether its journalists, builders or teachers, it’s quite hard sourcing contractors is an extremely competitive business. As a result, is not unheard of for agents to promote IR35 compliant contracts as a selling point for clients.

It is in the agency’s interests, within booming markets, to ensure that clients’ contracts pass IR35 inspection. If they don’t, they’ll lose out on the competition, so agents actively change their clients’ non-compliant contracts to pass inspection. The stronger position, in terms of negotiating power, will always be held by the contractor in the midst of booming markets. If your skills are in demand, you can always push for more co-operations from agency-based IR35 issues.

Depressed Markets

If you’re working in a market where you skill set is surplus to demand, then the IR35 bargaining position for contractors is limited. Agencies will not use the IR35 contract compliance as a business selling point, and they will be able to pick and choose their clients instead of having to compete with other agencies for business.

Timing IR35 Discussions

Some agencies have them, some agencies don’t, but every contractor wants to have a contract that is compliant with IR35 legislation. Market conditions are a huge factor when determining the strength of your position when it comes bargaining with agencies, so when is the best time to have the discussion?

Within a booming market, the best time to discuss new contracts is when you have the best set of options available to you. Not only will you be able to filter out the better contracts from the pool, but you’ll also be able to negotiate with these contracts to make them work in your favour. Even if an agency states that they can get you a better rate inside IR35 legislation, it’s highly unlikely that they can.

Within a depressed market, you don’t want to discuss IR35 any time before receiving a new contract, or reviewing indepth. Discussing IR35 before receiving a new contract will lead the agency to believe that you’re not a safe bet, or value for money. Unless you have a firm contract offer, don’t show your hand, otherwise you might end up with no contract at all.