1-2 hoursMedium

How to Draft a Subcontractor Agreement

Draft a subcontractor agreement by defining the scope of work, payment terms, delivery milestones, liability allocation, IP ownership, confidentiality obligations, and termination provisions. Ensure the agreement reflects genuine self-employment to avoid IR35 issues.

Last updated: February 2025

Step-by-Step Guide

1

Define the scope and deliverables

Clearly set out what work the subcontractor will perform, the deliverables, quality standards, and deadlines.

Tips
  • •Avoid language that implies employment, such as fixed working hours or detailed supervision.
2

Set payment and invoicing terms

State the fee structure (fixed price, day rate, or milestone-based), invoicing procedure, and payment window.

Tips
  • •Include provisions for expenses and VAT.
3

Allocate liability and insurance

Define who is liable for defective work, third-party claims, and what insurance the subcontractor must carry.

Tips
  • •Require professional indemnity insurance if the work involves professional advice.
4

Address IP and confidentiality

Specify who owns IP created during the engagement and include confidentiality provisions protecting both parties.

Tips
  • •Without an express assignment clause, the subcontractor may own IP they create.
5

Include termination and dispute resolution

Set out notice periods, termination for cause provisions, and the dispute resolution mechanism.

Tips
  • •Include a substitution right to support the self-employment characterisation.

Legal Requirements

The agreement must reflect genuine self-employment under IR35 (off-payroll working rules) in Chapter 10 of ITEPA 2003. For medium and large businesses, the client is responsible for determining the subcontractor's employment status. The Construction Industry Scheme (CIS) applies additional requirements for construction subcontractors.

Common Mistakes

Drafting the agreement in a way that implies employment, creating IR35 risk
Not including an IP assignment clause, leaving ownership ambiguous
Failing to require adequate insurance from the subcontractor

Template / Example

Subcontractor Agreement: [Company] engages [Subcontractor] to provide [services] as described in Schedule 1. Fee: £[X] per [day/project]. The Subcontractor is an independent contractor and not an employee. All IP created shall be assigned to the Company. The Subcontractor shall maintain professional indemnity insurance of at least £[X].

When to Get a Solicitor

If the subcontractor will create valuable IP, if the engagement is high-value, or if you need advice on IR35 status determination.

FAQ

What is the difference between a subcontractor and an employee?

A subcontractor controls how and when they work, can send a substitute, bears financial risk, and provides their own equipment. An employee works under the employer's control, has set hours, and receives employment benefits.

Do I need to check a subcontractor's IR35 status?

Medium and large businesses must determine the IR35 status of contractors working through personal service companies. Small businesses are exempt, and the contractor determines their own status.

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This is guidance, not legal advice. Consult a solicitor for complex matters.

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