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How is IR35 Status Determined?

Within less than a month we have seen the party responsible for determining IR35 move from end client to contractor and back to end client. Irrespective of who determines the IR35 status, how it is determined has not changed.

When assessing IR35 status contractors need to consider both the written contract and actual working practices. HMRC will look to see if the reality of the relationship is reflected in the contract and vice versa.

Determining IR35 status can be complex. There is no statutory test, and it will always be a question of balancing all of the factors to arrive at a decision based on the balance of probabilities. Even the most experienced judges can disagree on a status decision, so its important to seek professional advice.

Here is a reminder of the key IR35 indicators that need to be balanced are: -


If you are personally obliged to deliver the services in question, to your end client and there is no right of substitution, this may indicate a requirement for “personal service” a red flag that your relationship with your end client may be one of employment.

If your end client is open to substitution, then make sure you understand the key elements that must be present for the substitution to fall within that as agreed by the courts. It is not enough for a contract to state that there is a right to substitution. The right should be: -

  • Real and not a sham

  • Unfettered, in that your end client cannot refuse save on the grounds of capability and qualification

  • Be allowed whenever you choose as opposed to just when you are unavailable

It is also important that your substitute is not just picked from a pre-approved list of contractors that your end client has already assessed. This is deemed by the courts to be a fettered right. You should also retain responsibility for the substitute and for paying them.


To be deemed “Outside” of IR35, there must be no right of control by the end client over the contractor. Control is looked at from four perspective, control over the “where”, “when”, “what” and “how”.

To be truly independent a contractor should not be under any direction and should have the freedom to chose where and when to work. Having been engaged for their expertise and on a business-to-business basis a contractor should be able to determine how they achieve the end result required by their end client and what they need to do to achieve that.

Mutuality of Obligation

In every contract there is a certain level of mutuality. Where one party promises to deliver a service to another for a fee, mutuality exists. The question is, does that mutuality amount to a master servant relationship demonstrating employment?

The table below explains what behaviours may indicate Mutuality of Obligation.

MOO Exists if:

MOO Does not exist if:

There is an obligation and expectation for further work to be offered and accepted

You're free to choose the jobs you work on

You agree to work exclusively for this client

You're not obliged to provide your services exclusively to your end client

You're paid when not working

Your end client is not obliged to guarantee further work

You're required to work a notice period

Your end client is not obliged to find you work when there is downtime on a project.

Other Factors

Business on your own account – do you look like you are operating a business? Do you have a website, business stationary, an office? Do you provide your own equipment?

Are you taking any financial risk when undertaking the contract? Financial risk is a key indication of self-employment.

It is important that you don’t slip into being part and parcel of the end clients organisation. You should not feature on organisational charts, be involved in any HR processes and you shouldn’t access the same benefits as employed staff.

There is a lot to an IR35 assessment and its best to take advice. For more information read our Guide to IR35 and Guide to Demonstrating an Outside IR35 position.

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