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Why limited company contractors should consider writing a confirmation of arrangements letter

Why limited company contractors should consider writing a confirmation of arrangements letter

For limited company contractors, the debate surrounding how their employment status is determined is a complicated area. The government’s recently published Good Work Plan seeks to address current issues within Britain’s independent labour market. In this report, the government acknowledges that their tax self-assessment tool is inadequate, while the surrounding legislation on employment status requires further clarification and refinement. In the meantime, contractors should continue to take every precaution to safeguard their interests by providing clear and genuine pointers that they are in business on their own account. In this article, Contracting Scout looks at why a letter that confirms the arrangements between the client and the contractor is a valuable piece of evidence for your records.

In the event of an IR35 inquiry, HMRC will attempt to establish the true relationship between the contractor and the end client in order to determine employments status. As many contracts are generic, the investigating officer will often place more emphasis on the impressions and information they gather about the day-to-day working practices of the contractor while on a given assignment.

A signed letter that confirms the working arrangements between the contractor and the end client is the contractor’s opportunity to explicitly point to a set of arrangements that demonstrate they are in business on their own account. Confirmation of arrangements letters can be used to clarify the independent nature of the contractor by referring to their rights of substitution and control. A confirmation letter may include the following clauses

  • Start and finish date for the work that is to be undertaken by the contractor with details of hourly/daily/fixed rate
  • Specification of services supplied by the contractor and the right of the contractor to determine how, when and where these services will be carried out (with reasonable adherence to the client’s guidelines)
  • Acknowledgement that the contractor is required to carry professional indemnity and public liability insurance and would rectify any faulty work at their own cost
  • Acknowledgement that there is no payment for periods during which work has not been undertaken
  • The contractor has no expectation of further work from the client; if further work is requested, it will require an additional quote and the contractor is under no obligation to accept this work
  • The contractor has the unconditional right to terminate the contract at any time

Although the letter is not a legally binding document, it demonstrates that you have taken reasonable care to confirm your self-employed status with the client, and that they have acknowledged this. Unlike a generic contract or one that merely incorporates ‘paper clauses’, the confirmation of arrangements letter can be used to highlight the specific and unique circumstances of your arrangement with the client. As such, the circumstances that the confirmation of arrangements letter presents should be closely adhered to so that supporting evidence will clearly corroborate the letter. If HMRC can quickly establish the validity of a confirmation of arrangements letter, this will significantly reduce the likelihood that they will pursue the case further. However it is important to stress that a confirmation of arrangements letter is a precautionary measure for genuine contractors; if those who are witness to the contractor’s working practices cannot corroborate the letter, is it of little value. With this in mind, the following tips should be observed:

  • Write a confirmation letter for each contract, if you use a template make sure you add/delete relevant clauses
  • Ideally, the letter should be written on your own business stationary
  • The letter should be signed by someone directly involved with the contractor’s provision of services at the time of the assignment
  • Consider getting the confirmation of arrangements letter professionally reviewed

Recruitment agencies may be unwilling to spend time negotiating specific terms into the contract, however this doesn’t mean that you can’t ask the agency to pass on a confirmation of arrangements letter for the client to consider signing as it could be beneficial to all parties.

Contracting Scout can provide assistance with every aspect of contracting – talk to a member of our team on 0203 603 1878

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