IR35 status is determined by examining the true nature of the working relationship between you and your end client, not just what is written in a contract. Three tests carry the most weight: substitution, mutuality of obligation, and control. All three must be considered together.
The three main IR35 tests
1. Substitution
Can you send a substitute to carry out the work if you are unable or unwilling to do it yourself? A genuine, unfettered right of substitution is one of the strongest indicators that you are outside IR35.
For substitution to hold weight with HMRC, it must be a real right rather than a contractual fiction. Ideally, you should be able to provide evidence that substitution has actually occurred, or that you have identified and engaged subcontractors before. The end client should not be able to veto a substitute for reasons other than skills or qualifications.
2. Mutuality of obligation (MOO)
Mutuality of obligation refers to whether the client is obliged to offer you work and whether you are obliged to accept it. In an employment relationship, both sides have this obligation. In a genuine business relationship, no such mutual obligation exists.
If your client always offers you more work and you always accept it, and there is no clear expectation otherwise, HMRC may argue MOO exists. Contracts should explicitly state that neither party has any obligation beyond the current engagement.
3. Control
Control examines who decides how, when, and where the work is done. An employee is typically directed by their employer; a contractor operates independently, bringing expertise and deciding how to deliver the agreed outcome.
Indicators of low control (pointing outside IR35) include setting your own hours, working from your own premises, deciding your own methods, and being paid to achieve an outcome rather than to follow instructions.
Secondary factors
- Financial risk: Do you quote a fixed price and bear the risk if the work takes longer? Do you correct defects at your own cost?
- Equipment: Do you use your own tools and equipment?
- Integration: Are you part of the client's management structure? Do you appear in their staff directory?
- Exclusivity: Are you free to work for other clients simultaneously?
- Business-like behaviour: Do you have your own website, marketing materials, and multiple clients?
Gathering evidence of outside IR35 status
A status determination is only as strong as the evidence behind it. Keep records of:
- Invoices and contracts across multiple clients
- Instances where substitution occurred or was available
- Correspondence showing you directed your own work methods
- Evidence of financial risk (fixed-price quotations, invoices for rework)
- Your own business infrastructure (website, business cards, multiple engagements)
Challenging a status determination
If you believe an end client's Status Determination Statement is incorrect, you have the right to formally disagree. The end client must review your disagreement and respond within 45 days. If you remain dissatisfied, you can escalate to HMRC or seek legal review. Document every step of this process.
This guide provides general information only. IR35 is complex and the consequences of getting it wrong are significant. Always seek specialist advice from a qualified tax adviser. Find one via our accountant directory.