As an independent consultant, one of the ways I stay out of trouble and on the right side of the law is to know my own limitations and when to refer my clients to those with specialist expertise ...
One area which requires that deeper level of expertise is how you set up your own terms of business from a legal perspective. So this week I’m handing over my blog to Kerry Gibbs from BEB Contract & Legal Services to give you some tips on this vital part of setting up your business.
Kerry has been with BEB for around 4 years. She has a BA Hons (Criminology with Law) degree and also completed a Graduate Diploma in Law at Birmingham City University. She is currently studying for a Masters in Business Law at De Montfort and also CILEx Level 6 Diploma in Law and Practice. Kerry particularly enjoys getting up to speed with changes in the law that affect businesses, like IR35 and GDPR.
Setting up as a consultant freelancer is an attractive model for many professionals. Maybe you’re sick of working 9-5 in the same role, or perhaps the pandemic has encouraged you to look at alternative working arrangements?
Being a freelancer has many benefits, including the flexibility of working hours and the ability to choose which jobs or projects you want, as well as being a very affordable way to set up a business and work for yourself.
Choosing your area of expertise should be the easy part; generally, freelancers will focus on the industry they have spent much of their working life becoming an expert in. Perhaps you even have a niche that could give you the edge over your competitors.
However, in our experience, far too many freelancers set up without considering the need for having their own terms of business. If they have any at all, we find many either steal their terms from competitors or use templated documents instead of getting their own documents professionally drafted, which is dangerous and ineffective.
Yes, you are a freelancer, but you must treat yourself as a proper business. Every freelancer consultant should have a standard set of terms that they use for each piece of work they do. If they are written correctly, they are written with your business processes in mind.
You need to consider what your pricing processes are going to be. When I speak with new freelancers, they usually need some guidance in this area. You have flexibility here and may wish to offer different packages depending on each client’s needs.
You may wish to offer your clients a retained service where they are committed to paying you for a number of hours or days per month over a 12 month period, or something with less commitment like fixed priced hours, which tends to work well for clients who only need you for a particular project.
For any option you choose, it is imperative that you have terms and conditions to protect both parties. When you enter into any contract, you must consider what you would want to happen if the relationship breaks down, or if your clients’ needs change.
Like with everything, there are downsides that need to be considered when it comes to freelancing. Whilst yes, you are in control, this also means there is less security and some months you may feel stacked out where others you are struggling to make ends meet. You need to make sure you stay on top of your taxes, invoices, and factor in that there is no holiday or sick pay if you take time off.
You also need to consider IR35!
This is a complex piece of tax legislation that even HMRC seem to not understand most of the time. It was first introduced in April 2000 with the aim to address tax avoidance by individuals working in the role of an employee through an intermediary, such as a limited company. It is aimed at people like you, especially if you were once employed by your client.
It is important to establish whether the contracts you are working on fall inside or outside of IR35. As a contractor, HMRC can investigate your arrangements at any time, and this can be time-consuming, costly and highly stressful. The financial impact of IR35 could be significant. If IR35 rules do apply to the contract, the fine would be the same as the Income Tax and National Insurance contributions the contractor would have paid if employed directly, rather than contracted to work through your limited company. HMRC can go back six years and evaluate past contracts to see if the legislation should have been applied previously too.
HMRC have the legal right to conduct a status review of your business at any time. If and when this happens, you will have to prove that you are genuinely self-employed and that you conduct your business on your own accord. You must also show evidence that you are not just an “employee in disguise”.
One way to do this is to make certain that your contracts with your clients adhere to the standards of IR35. An HMRC inspector will conduct a thorough review of your contract arrangements to ensure that you are indeed self-employed. Accordingly, you must make sure that the way you work in practice reflects what is written in your contracts.
Thank you Kerry!
If you have any concerns or are unsure where to start, I highly recommend you speak with an expert such as Kerry. The team at BEB Contract & Legal Services can help with writing and reviewing freelancer agreements and terms of business. Everything they do is for an affordable, fixed price –
As a small business owner you know you can't know everything. One of the advantages of a diverse network is that whatever your clients need you can cover off with a relevant specialist. This week I've been handed over to one such company. BEB Contract and Legal www.bebconsultancy.co.uk
If you'd like to learn more about referral marketing then do give me a call on 07970 638857 and let's have a chat and see how I can help you.