HMRC are less likely to try to reclassify your subbies as employees if there is a contract between you that clearly shows the relationship is one of contractor and subcontractor.
And your subbies will be less likely to claim they thought they were employees if they signed a contract saying otherwise.
Two very good reasons why you should have a watertight contract.
We recommend letting us create contractor-subcontractor agreements, but if you plan to attempt it yourself, here are three things to avoid.
Mistake #1: Nicking other people’s contracts
While it’s tempting to use a free template or copy someone else’s contract, there are a whole host of reasons you shouldn’t.
Lack of customisation: Subcontractor agreements should match reality, and someone else’s agreement won’t necessarily reflect the way you operate. And if it doesn’t accurately reflect the way you operate, HMRC and the courts will throw it out.
Potential hidden clauses: Someone else’s agreement may contain hidden clauses that the original author added to suit their needs – they might not be relevant to you or in your best interests. Copying these could lead to unforeseen and unfavourable consequences.
Inadequate risk management: Your business might have risks to consider that aren’t reflected in a free contract template or someone else’s agreement. Why leave yourself open to issues when you could have a bespoke contract that mitigates those risks?
Lack of clarity on terms and responsibilities: If you’re telling your subbies one thing, but the contract terms say something else, there could be confusion and misunderstandings between you and your subbies, potentially leading to disputes.
Limited flexibility: A copied agreement may not allow for flexibility in the event of changes or unforeseen circumstances. Customised agreements can include provisions that allow for modifications in a way that protects the interests of all parties involved.
Mistake #2: Mentioning insurance
Specifying in your contract that all subbies must have liability insurance is all well and good, but does it match up with reality?
There is no legal requirement for a sole trader to have liability insurance, so what will you do if you find a great subcontractor who doesn’t have any? And are you going to keep track of when each subcontractor’s insurance is up for renewal so you can check their policy every time?
We’re not saying your subbies shouldn’t get insurance, but you don’t need to mention it in your contracts. Because if HMRC ever check whether your contracts match reality, it’s just another hole they could find to back up their case.
Worry less about your subbies’ insurance and focus more on ensuring your business has adequate cover.
Mistake #3: Mentioning holiday pay
Employees get holiday pay. Subcontractors don’t.
Subcontractors are self-employed and self-employed people have to make their own provisions for covering holidays and sickness.
There is also no requirement for them to pre-book their holiday or limit how many holidays they take. As self-employed contractors, they decide when they work.
Sure, you might want them to let you know if they’re not going to be available for two weeks or if they plan on sending a substitute. But they are not obliged to pre-book time off, and you can’t dictate when they must be available.
So don’t mention holiday pay in your contracts. If you want to give your subbies employee perks, hire them as employees and put them on your PAYE.
If you want them to stay as self-employed contractors, then accept that they can run their business however they choose (which includes taking as many holidays as they want).
Avoid contract traps with HardHats
You can create your own bespoke contract from scratch, but have you really got the time and legal knowledge to faff about with all that?
Unless you have a keen interest in contract law and an abundance of time, you’d be better leaving it to us. It’s what we do best, and we’ve made it incredibly easy.
All you have to do is tell us exactly how you work with subbies and then pay our invoices on time.
We do the rest.
We create your bespoke contract.
We send it by text or email to all your subbies so it can be signed electronically.
We take care of any HMRC enquiries or questions about the employment status of your subbies.
And we even provide an insurance-backed guarantee meaning we’ll pay any associated fees if HMRC ever did reclassify your subbies.
All that, and you don’t have to give up your payroll. You take care of paying your subcontractors, so you have more control over your cashflow, and your subbies don’t have to pay to get their wages.
If that sounds good, book a call now to get started.