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What Legal Issues Might Contractors Face?

Working as a contractor means you not only take on a lot of risks, but you are also exposed to plenty of threats to both your company and income that you won’t always see coming – it’s all part and parcel of being self-employed. With this in mind, it’s important to be aware of the potential legal issues you could face as an independent professional and know how to best protect yourself from them. Here are five that you might encounter and mean you need expert legal services.

A tax or IR35 investigation

HMRC has targeted contractors for years. It suspects many are disguised employees and therefore not compliant with the off-payroll tax legislation, commonly referred to as the IR35 rules. With the tax office under even more pressure to raise tax receipts due to COVID-19, you would be wise to be wary of what experts have described as an aggressive HMRC.

There have been a number of high-profile IR35 cases in recent years. In 2019, former BBC presenter Christa Ackroyd lost her appeal and faced a £420,000 tax bill, after a tribunal upheld the decision that she acted as an employee not a contractor when engaged by the broadcaster.

This case was just one of many. And given IR35 is a complicated legislation that has huge financial implications for contractors, it’s important to have a trusted IR35 expert on your side, in addition to protecting yourself with IR35 insurance.

While insurance will cover any resulting tax liabilities you’re deemed to owe HMRC, a number of policies also include the cost of advice and representation in court, should it come to that.

A client who pays late or not at all

Relationships with clients may not always be plain sailing – they can turn sour. Disputes such as the client refusing to pay or wanting to terminate a contract early can arise and if they do, you need to know your legal rights.

Late or no payment is one of the most common disputes contractors face. In fact, a third of all payments to small businesses aren’t settled on time and as a result, 20% of those businesses run into cash flow problems.

There are many reasons why a client may withhold payment. They might be unsatisfied with your work. They could be unaware of certain costs or, in the worst case scenario, the company’s financial circumstances may have changed and they might not have the funds to pay you.

If you come up against a client who refuses to pay, a trusted debt recovery service will help you make the right calls at the right time and resolve your dispute as amicably as possible on your behalf.

Being held liable for a mistake

Mistakes happen. You could make an error which causes your client’s website to crash and halt sales, or you might miscalculate the measurements on plans for a building, stopping construction altogether. But what if your mistake costs your client thousands of pounds? You don’t want to be financially liable for them.

Professional indemnity insurance protects contractors against such scenarios. It covers services, advice or work you have completed for a client that may cause them to suffer loss – both financial and reputational. In many industries, companies won’t engage with contractors who don’t hold this policy.

Reputational damage

We’re all guilty of having a moan about work, a client or a co-worker. And in this digital age, it’s far too easy to vent on social media. However, sometimes this can have damaging consequences.

Let’s say a Tweet or email you sent causes reputational damage to your client – they might attempt to sue you for defamation if there’s a chance your statement could be proven false.

In some instances, an apology will suffice, but it’s always best to safeguard yourself. Some professional indemnity insurance policies will cover you in defamation cases, but be sure to check the small print.

Previous contractual agreements

Some businesses place a restrictive covenant clause into their employment contracts. This typically prohibits an employee from working with a competitor for a certain period of time after they have left employment.

This could mean that you may not be able to carry out freelance work for certain clients, assuming they operate in the same space as an ex-employer. In some industries, this could also mean not being able to work in a set mile radius from your old employer’s premises, as crazy as that sounds.

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If you’re thinking of making the jump into contracting, check your employment contract thoroughly beforehand. See if such a clause is included. Would you be able to successfully work with other clients without breaking it? In such circumstances, it’s always best to seek expert advice so you know where you stand and what you can and can’t do.

QAccounting is one of the UK’s leading contractor accountants. To learn more about our accountancy packages and range of legal services, please request a callback – one of our friendly and knowledgeable contractor accountants will be in touch.