You’ll hear us talking about the importance of contracts a lot. And that’s because they really are the best way to protect your construction business from an HMRC enquiry into the employment status of your subbies.
Not only that, but they ensure there’s no ambiguity between you and your subbies, reducing your financial risk if things go wrong.
But how detailed does a contract need to be? Do you need a bespoke agreement, or can you make do with an off-the-shelf template?
Although free contract templates might be tempting – after all, who doesn’t love a freebie – you can’t always rely on them for protection.
The biggest flaw with free templates is that they are designed to be generic. The whole point of them is that anyone can use them, which means they can’t get into the specifics of how your business works.
Yes, you can add a few clauses or amend wording here and there, but unless you understand contract law, you could be leaving yourself open to a whole host of problems.
And you won’t necessarily know what extra clauses you need to include until you suddenly face a situation where that clause would have helped you out – by then, it’ll be too late.
Free contracts might save you a few quid in the short term, but they could end up costing you a fortune in the long term.
Your contract has to match up with reality
There’s no point having a contract that doesn’t reflect how you operate in real life. HMRC and the courts don’t just take your contract at face value and rule in your favour. They’ll look at the reality, and if it doesn’t match up, your contract won’t be worth the paper it’s written on.
Castle Construction successfully defended its subcontractors’ employment position against HMRC because there was evidence that reality matched the contract.
In contrast, a tribunal in 2022 saw a construction firm ordered to pay almost £30k to a subcontractor because the court decided the contract they had in place (via a payroll company) was a complete sham. It didn’t reflect reality, and the judge saw right through it.
This proves that not only are free contract templates a risk, but the ones payroll companies use aren’t much good to you either. And why would they be? The payroll companies put contracts in place to protect themselves, not you.
The terms need to reflect the way you operate
How do you work with your subbies? Do they drive your vans? Do they wear your uniform? Do you pay for their recertification?
All of these things are perfectly acceptable if you provide a legitimate business reason for why you work this way. But a free template won’t go into any of this detail, which could lead to HMRC questioning whether your contract is legit.
A HardHats contract covers what we like to call the three-factor formula:
- The Commercial Aspects
- The Business Factors
- The Three Tests
Put simply; we document exactly how and why you work with your subbies the way you do so that HMRC can’t ever misinterpret their employment status.
Free contract templates don’t come with an insurance-backed guarantee
Having a contract is all well and good, but sometimes HMRC will still question the way you work with subbies. A contract isn’t going to handle that enquiry for you, but HardHats will.
Unlike free contract templates, our bespoke contracts come with an insurance-backed guarantee. Should HMRC ever open an enquiry into the employment status of your subbies, we’ll handle it on your behalf and cover any costs if they decide to reclassify them as employees. No freebie contracts offer you that kind of protection.
Bespoke contracts are cheaper than you might think
Having a contract is all well and good, but sometimes HMRC will still question the way you work with subbies. A contract isn’t going to handle that enquiry for you, but HardHats will.
Unlike free contract templates, our bespoke contracts come with an insurance-backed guarantee. Should HMRC ever open an enquiry into the employment status of your subbies, we’ll handle it on your behalf and cover any costs if they decide to reclassify them as employees. No freebie contracts offer you that kind of protection.
Bespoke contracts are cheaper than you might think
You might think a bespoke contract sounds expensive, but with HardHats, you could cover yourself for around £3 per subcontractor per month (find out more about our fees here).
We think that’s pretty reasonable, considering we not only create the contracts but we also do the hard work of getting them signed electronically by all of your subbies.
Plus, you can use our software as a subcontractor management tool at no extra cost. Securely store digital copies of any documentation relating to your subbies, including training and insurance certificates, invoices, expense claims and payment details.
And the best part? We don’t take over your payroll, meaning you keep control of your cashflow, and your subbies don’t have to pay a fee every time they want their wages.
Sound good?
Find out more about how HardHats can protect you here, or contact us to get started.