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Key points to bear in mind before accepting a new contract

Paystream News

Michelle Derungs

Thursday 14th Jan, 2016

Choosing to work under an umbrella company or as a limited company contractor means that you will be responsible for seeking and securing your next contract. However, it's important to consider if your new contract is the right choice for you.

Therefore, we've outlined a few factors to bear in mind...

Duration of your assignment

Before accepting a contract, it's important to assess whether the length of the assignment is suitable for you. If it's for a very short period and you're looking for financial security, it may be worth looking for a slightly longer contract.

A contract can be for a fixed period of time or on a rolling monthly basis. If the contract is for a fixed period of time, consider asking the client if there will be an opportunity to extend the contract should you both wish to. However, it is important to bear in mind the "24 month rule" because if a contractor either works on the same site or just as importantly intends to work on the same site for more than 40% of their working time over a 24 month period, their site will be viewed as a permanent workplace, therefore travel and subsistence expenses will no longer be allowable business expenses.

Work carried out

Before accepting any contract, it's important that you and the client are both clear on the particular task that you have been brought in to do. Are there any specific goals or targets that must be completed within the time period of the contract? Are these reasonable and realistic for you to achieve within the contract time frame?

A contract should typically have a clear set of deliverables that are required of you.


As a limited company contractor, it is crucial that your contract should not include any reference to how the work should be carried out. This is because for the purposes of IR35, in order to remain outside of the legislation, a limited company contractor should be able to decide when, where and how they conduct their work. This means, for example, that if your client supervises your assignments, makes you come into the office on set working days or hours or even dictates that you ask permission should you want to take time off then, in the eyes of HMRC, you effectively are an employee and so should be taxed in the same manner as an employee.

Equipment and supplies

Similar to control, a client should not supply tools and equipment to a contractor working through their own limited company and withdrawing dividends, unless this can be justified, for example, on health and safety or security grounds. As a contractor, you should supply your own tools and equipment, as this helps to demonstrate financial risk, and it should be your choice which tools you use to carry out a job.


Finally, it is important to be clear of the circumstances in which your new contract could be terminated. Some contractors may find that a client will try and terminate a contract because their needs have changed however it's important to be clear on what grounds both the client and you as the contractor could terminate the contract if necessary.

You should also be clear of any commitments you have should you wish to end a contract, including whether or not you have to provide a notice period.

Operating as a contractor means that you should always be aware of the technicalities of the contract that you are entering into. Taking into account all of the points mentioned above should hopefully ensure that both you and the client are on the same page before the contract begins.

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