If you`re a freelancer or contractor in the UK, it`s important that you understand the concept of IR35 compliant contracts. In simple terms, IR35 is a tax legislation that seeks to identify and tax disguised employment. This means that if you`re working as a contractor but the nature of your work is more like that of an employee, then you may fall within the scope of IR35 and be required to pay additional taxes.

To avoid this, it`s important that you have a contract in place that is IR35 compliant. An IR35 compliant contract typically has the following characteristics:

1. Personal Service: The contract should specify that the client is contracting with you as an individual and not with your business. This means that you cannot substitute someone else to do the work on your behalf.

2. Control: The contract should specify that you have control over how you carry out the work and that you are not subject to the same level of control as an employee.

3. Mutuality of Obligation: The contract should specify that the client is not obliged to offer you work and that you are not obliged to accept it.

4. Financial Risk: The contract should specify that you are responsible for your own expenses and that you bear the risk of any losses.

5. Business-like Behaviour: The contract should specify that you are operating as a business and not as an employee. This means that you should have your own business premises, equipment, and take out your own insurance.

By having an IR35 compliant contract in place, you can reduce the risk of being caught by IR35 and having to pay additional taxes. It`s also important to note that the responsibility for determining whether IR35 applies to a contract lies with the contractor, so it`s important that you seek professional advice if you`re unsure.

In summary, an IR35 compliant contract is a contract that specifies the terms of a contractor`s engagement and ensures that the contractor is operating as a business and not an employee. By having such a contract in place, contractors can avoid falling within the scope of IR35 and having to pay additional taxes.