Determining whether IR35 applies is complex and must be considered at the individual assignment level. HMRC will also look ‘behind’ your contract with your end-client and at the actual working practices being followed - so it’s not just a ‘paper exercise’. You should seek specialist advice. However there are three key principles that will determine your IR35 status, and your end-client has the right to do the enforce the following:

Control: What degree of control does your client have over what, how, when and where you complete the work?

As a contractor, it’s likely that you’ll work to a comprehensive job specification. This specification would outline the following:

  • The services to be provided
  • Where the services are provided
  • The hours in each day over which the services are provided.

However, the contract may go further and say that you must submit to management guidance, appraisal or monitoring. This is an indicator your work is being controlled and that you’re an employee, not a contractor.

Substitution: Are you required to carry out the work yourself, or can you send someone else in your place? If you have to provide your services personally, this is usually an indicator that you’re an employee. A contractor, on the other hand, could send a substitute to complete the work on their behalf. A contractor could also reassign the work. However, the right to send a substitute must be absolute and not restricted to such an extent that you have to perform the work yourself.

Mutuality of obligation: Does the contract oblige your client to offer you work throughout the contract period, and are you obliged to personally do the work? When the contract period ends, is there an obligation on the end-client to offer you further work and extend the contract?

To qualify as a contractor, there can’t be any ‘mutuality of obligation’. There are three obligations to consider:

  • An obligation for one party to offer other work within the assignment
  • The worker has an obligation to complete a notice period of similar length to that if they were an employee.
  • If work is offered, an obligation for the other party to accept it.
Put simply, a contractor must work on a project to project basis, with no obligation to carry on working for the end-client after the project has been completed. A contractor also has the right to terminate a project partway through. To qualify as a contractor, make sure these apply to you and that there is no ‘mutuality of obligation’.

Regardless of the sector you work in, these three key principles remain the same. If you can clearly show that any one of these principles does not apply, you should not be affected by IR35. This is because the relationship with your client will be seen as a contract for services, rather than a contract of employment. For example, if a worker can send a substitute in their place, and that decision is not fettered in any way, personal service is not required and IR35 does not apply.

As well as the three key areas highlighted above, you also need to be aware of some additional factors:

Financial records: A contractor will receive payment when work is completed, while an employee will usually be paid at regular intervals.

Alternative work: If you’re contractually obliged to have one client at a time, you’re probably an employee, not a contractor.

Equipment: Unless there’s a sound reason (such as for safety, security or practicality) you should be using your own equipment, rather than equipment supplied by your client.

Corporate involvement: You could be affected by IR35 if you have any involvement at all with your client’s corporate structure. This applies to even the smallest involvement, such as whether you have a security pass to your client’s building.

Blacklists: Check to see whether your client has had any IR35 problems in the past.