First Time Contractor Questions

[dagenheis]

Hi, I am about to sign my first ITcontract and I have following concerns:

1. There is no notice period for me ,whereas the CLIENT has following rights (based on subjective criteria in my opinion). Is it because of being a short term contract?
"
CLIENT shall be entitled to terminate this agreement immediately without notice in writing if:
(a) if the Contractor (or any person appointed by the Contractor under clause 7,2) commits a substantial breach of any of their obligations under this agreement and (if that breach is capable of remedy) fails to remedy it within the time reasonably permitted for this purpose in any notice in writing provided to it by CLIENT;
(b) CLIENT is on reasonable grounds dissatisfied with the level of technical skill of the Contractor, or manner in which the Services are performed ; or
(c) the Contractor fails to provide the Services, due to illness, injury or otherwise, for a period of days which CLIENT reasonably considers unacceptable, in light of the nature of the Services or the Term (unless a replacement is provided under clause 7,2, to the reasonable satisfaction and agreement of CLIENT) "

2. I find the Service Contract Period bit vague again. Contract Period is defined as :
QUOTE
The services will be provided:
- from 3rd July 2010 and will end on 3 October 2010
- on confirmation by the CLIENT Authorised Representative that the deliverables conform to CLIENT ’s requirements as described in this Schedule.
UNQUOTE

3. Payment Terms: The contract states that the invoice should be issue to the CLIENT on monthly basis in arrears. AND "The Contractor’s invoice shall state the Services provided in the period covered, and shall be payable by CLIENT within 45 days of receipt of the relevant invoice."

My concern is that it may take 75 days to get paid for my first month there! And I will have to wait for long time after I finish my contract to get the money paid up.

I am contracting directly with the client (big IT company) and I am being told that it's a standard contract. Appreciate your early comments.

4. Also final question is: Should I setup my payment structure through a limited company or an Umbrella company? Currently, it's just an indvidual contractor contract.

[cojak]

If I'm unhappy with a contract I get Bauer and Cottrell to negotiate it for me, (I'm not so good at that kind of thing myself - they get past the 'it's the standard contract' ploy). Other people I know have accountants who do the same thing.

As for the the notice period, I have the same in my contract. It's called a lack of Mutuality of Obligation and since the contract is only for 3 months I ok with it.

Accept, negotiate or reject, the choice is yours...

Answers to umbrella/ltd questions can be found here.

[Wanderer]

Hi and welcome!

I'm presuming that you have read the sticky Should I trade as a Limited Company, umbrella or composite and the Contractor UK :: First Timers Guide - for IT Contractors.

Nasty as it sounds, your contract is standard stuff really. Go ahead, take a deep breath and sign your life away.... Don't expect anyone to help you out if anything goes wrong. That's the nature of the business with contracting and that's why you get paid a whole lot more than a permie. If you aren't getting a lot more than an annual permie salary divided by 1000 as an hourly contracting rate then they are ripping you off. ie, if a permie would get 30k/year then you need to get 30/hour.

3. Payment Terms: The contract states that the invoice should be issue to the CLIENT on monthly basis in arrears. AND "The Contractor’s invoice shall state the Services provided in the period covered, and shall be payable by CLIENT within 45 days of receipt of the relevant invoice."

I am contracting directly with the client (big IT company) and I am being told that it's a standard contract.

"It's a standard contract". Yeah, they all say that, especially to the new boys.

Don't stand for it. Tell them "What if the agency go out of business? I've then lost up to 75 days of money." Then they get all hurt and tell you that they'll NEVER go out of business (etc etc). Don't worry about offending these ogres, they have a really thick skin and it's their job to try it on all the time. If they tell them that the client only pays them after 45 days then tell their relationship with the client is quite simply not your problem. Tell them "I'm running a small business here and 14 days payment terms is the maximum credit I am willing to extend to your company". If they will scream and cry and say they have no authority to change it etc, tell them to bugger off and find someone who CAN change it then. Eventually they escalate it to their financial director for approval (yawn) and you will settle for 30 days which is the maximum it should have been in the first place.

My concern is that it may take 75 days to get paid for my first month there! And I will have to wait for long time after I finish my contract to get the money paid up.

Make sure you are allowed to and do invoice them every week. That way the most credit you are extending to them is your payment period + 7 days, so you are getting paid weekly but (say) 30 days in arrears.

Also, DO NOT opt-out of the Agency Regulations unless you are absolutely sure you know what you are doing. If they have tricked you into opting out then send them a letter saying that you have decided to opt-in again. These regs protect you against the agency refusing to pay invoices under certain circumstances.

4. Also final question is: Should I setup my payment structure through a limited company or an Umbrella company? Currently, it's just an indvidual contractor contract.

You won't get a straight answer to that one here.

If you are outside IR35 then sign up to the PGC with an accountancy package, your accountant will then setup a LTD company for you. You will pay a lot less tax this way.

If you are inside IR35 then you are going to get clobbered for a lot of tax so you should probably go with an umbrella for at least the first 6 months until you find your feet and you can decide what's best for your personal circumstances.

If you don't know if you are inside or outside then get your contract reviewed, google IR35 contract review to find someone who will do this for you or look for recommendations here.

[dagenheis]

Thanks for your detailed answer. I have take a look on the links; There is a lot to understand.

I have already mentioned these two concerns to my client and I hope to have a clear idea early next week whether they are willing to change the payment terms at least, so that I can invoice on weekly basis. It just feels too much to get paid after 75 days for my first monthly invoice. Is it a common to have weekly invoices issued to the client on 30 days arrears basis?

After looking at the resources and my contract, looks like my contract is outside IR35. My contract outlines my services as project deliverable and it's a direct contract with the client. I wonder if I can still save money to use an umbrella company structure for an outside IR35 contract? Not sure If I am asking a silly question.

I am thinking to use an umrella company as I need to sponsor my wife's visa in few months that would need my wage slips etc. It sounds risky to use my own limited company for that purpose because I don't have a previous history.
If I decide to use an umbrella company, I am guessing that my client will need to make a new contract with the umbrella company. Is that right?


Thanks for bearing with me. After sever years of permanent employment, I am already feeling nervous about this contractual wording and all..

[mudskipper]

After looking at the resources and my contract, looks like my contract is outside IR35. My contract outlines my services as project deliverable and it's a direct contract with the client. I wonder if I can still save money to use an umbrella company structure for an outside IR35 contract? Not sure If I am asking a silly question.

You can't operate outside IR35 through an umbrella company - i.e. all your income will be subject to both employer's and employee's NI contributions. Read the first timer guides - it's really important to understand your options or it will cost you ££££. If you are outside IR35, a limited company is usually the best option. However, as your contract is only 3 months, it depends what you anticipate happening after that. If you are only contracting for 3 months, it may not be worth the hassle of Ltd Company. An accountant should be able to advise you.

[Wanderer]

Ahh, I didn't realise you were going direct with the company. That explains the long payment terms. You can and should still try and negotiate the terms to 30 days though - there is no reason why they can't pay up this quickly.

I am thinking to use an umrella company as I need to sponsor my wife's visa in few months that would need my wage slips etc. It sounds risky to use my own limited company for that purpose because I don't have a previous history.

Probably your easiest option is to go umbrella then. When you have your wife settled in and you are feeling a bit more comfortable with contracting you should look at getting a LTD.

I am guessing that my client will need to make a new contract with the umbrella company. Is that right?

Correct.

[dagenheis]

Cheers guys, I am grateful for these well informed advice.

1. Since my client really needs me to start sometime next week, I am going to send a signed copy tomorrow to get the process (Purchasing request, badge etc) started. BUT I have asked them to clarify these 2 concerns and we can sign a new contract later next week. Lets see how they clarify this. I am just bit worried that sending a signed copy may weaken my negotiation to change this contract. I really need weekly invoicing structure.

2. I couldn't upload the contract here, but I feel that it's outside IR35. It outlines following as well:
====
STATUS OF THE CONTRACTOR
6.1 The Contractor shall be an independent contractor, and not the agent, partner, employee or servant of <CLIENT>.
6.2 Subject always to clause 4, the Contractor shall not be subject to directions from <CLIENT> as to the detailed manner in which they shall perform their work.
====

2. @Wanderer: Yes I plan to start with an Umbrella Company option due to the aforementioned reasons. I forgot to mention that I expect to claim some travel expense for my car (more than usual commute)

Please share couple of names that offer hassle-free brolly companies for me to contact them. I found out about SpringBoard offering "zero" cost, at least, for the first contract. I sent them an enquiry 6,7 days ago but no response. IMO companies are always responsive to new business. What do you think about SpringBoard?

Is it a standard practice to ask for passport and utility bill?

3. I am writing to my client as well that I plan to use a brolly company so they 'd need to sign a contract with them even after I start my work. I hope there ain't anything wrong with it. I also think that a brolly contract may automatically resolve the payment terms as I can't see an umbrella company agreeing to 45 day period on monthly arrears invoices. What do you think?

Many thanks for your guidance.

[Wanderer]

I am just bit worried that sending a signed copy may weaken my negotiation to change this contract. I really need weekly invoicing structure.

If you sign the contract then you agree to the terms and the deal is done. Your chances of being able to renegotiate the contract after you have signed it are pretty much zero in my opinion. Don't sign it until you are willing to accept it.

They may scream and wail and wring their hands but at least you have a bargining chip.

Client: "But we need it signed straight away!".
Contractor: Then sort out a reasonable payment period then.

It's a battle of nerves. Be strong.

I feel that it's outside IR35.

It sounds like the client is pretty IR35 savvy. Since you are not going through an agency, the client could potentially be held to be your employer and therefor liable for PAYE/NICs which is probably why they've written it to be pretty bullet proof.

What also matters is your actual working arrangements, but if the client is savvy enough then I don't think you have any problems here. Good work.

Please share couple of names that offer hassle-free brolly companies for me to contact them.

I used Parasol for a while, they are OK. Don't go with anyone who takes a % of your contract. Watch out for the "free" deal - there's no such thing as a free lunch in my opinion. Don't allow any brolly to withhold any of your money for "holiday pay" or anything daft like that - they could go bust and you never get the money.

They pay you a few days after they get the money from the client. Make sure you get the timesheets submitted correctly etc so you get your first pay on time.

I had to produce some identification and proof of address. I don't really have a problem with it. If the client didn't request this then you could use a false name and disappear without paying any PAYE/NICs and leave the client liable.

3. I am writing to my client as well that I plan to use a brolly company so they 'd need to sign a contract with them even after I start my work. I hope there ain't anything wrong with it. I also think that a brolly contract may automatically resolve the payment terms as I can't see an umbrella company agreeing to 45 day period on monthly arrears invoices. What do you think?

If you go through the brolly then the client forms a contract with the brolly who then employ you as an employee of sorts (albeit without any employee rights for sick/holiday etc). If the client doesn't accept this arrangement then maybe the brolly can talk them into it. Otherwise you will have to go LTD (and since you are outside IR35 you will save a lot of money going LTD, check the IR35 calculators on the web).

The brolly won't care what the payment terms are because, unlike an agency, they don't pay you until they get paid. So if the client pays @45 days then you will get your money from the brolly @47 days or thereabouts.

You could ask the brolly to try and negotiate the payment terms down to 30 days for you and they may or may not help out here.

Many thanks for your guidance.

Good luck!

[mudskipper]

Don't allow any brolly to withhold any of your money for "holiday pay" or anything daft like that - they could go bust and you never get the money.

I could be wrong, but I thought that they are required by law to pay you holiday pay, and therefore hold some of your money for this purpose. This explains it. (I haven't used a brolly, so not recommending or otherwise!)

[dagenheis]

I could be wrong, but I thought that they are required by law to pay you holiday pay, and therefore hold some of your money for this purpose. This explains it. (I haven't used a brolly, so not recommending or otherwise!)

Yes, that's what I am told this morning by a brolly manager. They are required by law to keep around 16.50 per week towards my holiday pay. However, I can take out that money any time after first week. Does that sound alright?

folks, my client is offering me that I can submit my first invoice after two weeks for the first WHOLE month and then they can make efforts to get early payment. For the subsequent invoices, they can figure out from the first payment as to how long it takes. Basically the client is willing to help me as we have worked together in the past. But, it seems to be a difficult and long process to get legal team to change this in a large organisation. I hope that arrangement shouldn't have any tax/umbrella implications. I think, I am going to accept this as I can trust the person involved. Please share your view.

BTW, I am quoted around 110 (67.29 with tax relief) for the umbrella services. Does the price look OK? I am being told that I will need to submit receipts for travel expense (fuel, car maintenance), but I don't need to submit any receipts for subsistence (lunch) @ 9.50 per day.

I intend to start this week. Do I need to sort out LTD or brolly set-up before I start this week or I can do that within first weeks before my invoice is due?