Your Liabilities
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Your Liabilities
Going it alone as a contractor requires a little courage but mostly organisation so that you can weather any financial risks and protect yourself from being sued.
This section aims to remind contractors of what they need to do to manage financial risks and avoid being taken to court.
Contractual liability
Companies retaining your services will usually ask you to sign a standard contract of theirs. When entering into a written agreement with a client, check the contract document with a fine-toothed comb. The contract sets out in detail exactly what your rights and obligations are in your relationship with the client; failing to deliver on those obligations in the way or in the timeframe agreed could put you in breach of contract. If the client successfully brings an action against you in this respect, the main remedy available to them through the courts is damages. This means that not fulfilling your part of the bargain could put you severely out of pocket.
Contracts can also be oral or implied during legal proceedings between you and your client if the court believes that a valid agreement has taken place.
In all matters, make sure you are aware exactly from the outset what the client expects from you, when you have to deliver this, and the amount and manner of payment due to you. If you are unsure on any point, do not hesitate to ask questions; equally, if you are unhappy with any terms in the contract put to you, raise this as soon as possible. It is better to clarify your agreement now than find yourself in court later.
Tax
If you are an independent contractor, you are entirely responsible for keeping your own income tax affairs in order. Failure to do so could see a hefty claim brought against you by HMRC.
For further information on contractor-specific tax matters, see Everything you Need to Know About IR35, What Expenses Can I Deduct? The Way Tax Works for Married Couples’ Businesses and Tax Basics.
Product Liability
Contractual liability is the most likely area for you to be vulnerable to legal action. However, if you are producing goods for a client and they are found to be defective, you could have a claim brought against you in the area of product liability. As a manufacturer, you have a duty to the ‘ultimate consumer’ of your product - this could be any person you should have foreseen to be affected by it. Factors determining your liability will include whether or not damage has arisen to the consumer or his property, whether this damage was reasonably foreseeable, and whether an inspection has been made.
This liability could also apply if you are a supplier of pre-manufactured products, or to someone who supplies a product that you have made.
Professional Indemnity Insurance
This covers you for claims brought against you by a client in respect of products or services you provide, both in terms of legal costs incurred and monies paid out in compensation. In the absence of the considerable financial protection in insurance terms enjoyed by employees, professional indemnity is a must for the independent contractor. Further Legal Expenses cover is also available.
For further information on Professional Indemnity Insurance, see Insurance options in Tax, Finance and Money.
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