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How to Contract outside of IR35

No contractor wants to be inside IR35. In an earlier article, we have seen some factors that determine whether a contractor is inside or outside IR35. In this article, we give some tips on how contractors can minimize the risk of being caught inside IR35.

Before we start, we want to remind that to be outside IR35, a contractor has to be careful both at a contract and a working conditions level. If the contractor has IR35-friendly contract, but the working practices are not aligned with the contract, the chances of being outside IR35 are decreased.

We use the example of Tim, a fictitious contractor, to demonstrate the necessary steps in each of the key areas determining the IR35 status.

Control and direction

A key factor that determines a contractors’ IR35 status is how much of their work is controlled by the client. Full-time employees are directly supervised and controlled by the employers. However, as an independent contractor, Tim has a greater freedom and control over how he wants to work. If there is a great degree of control, the contractor’s working practices are highly likely to be similar to a full-time employee.

Example 1: Tim is an IT contractor, and for IR contracting projects, a client may outline all the tasks involved in a project in detail. However, if Tim wants to avoid IR35 trouble, it is better that he is given specific goals and outcomes rather than detailed guidelines and steps on how to achieve those goals.

Things to watch out for:

Note that if the contractor is working through a recruitment agency, all clauses related to control and supervision should be similar in both the contracts – the contract between the client and the agency, and the contract between the agency and Tim.

Right of substitution

If there’s an HMRC enquiry regarding IR35, the right of substitution plays a very important role in determining whether a contract is inside or outside IR35.

Full-time employees are expected to provide their own services to their employers. However, if a client signs up with a Limited Company contractor, he is essentially signing up with a Limited Company for their services and not any specific individual. This implies the Company can send any qualified person, and not necessarily the contractor himself, to the client.

Things to watch out for:

Not having a right of substitute alone will not put Tim at an IR35 risk. For example, there could be contracts that require personalized services of a contractor. If there’s an IR35 enquiry, substitution is only one deciding factor along with various other factors.

Mutuality of Obligation

Mutuality of obligation is a significant part of a relationship between an employer and a full-time employee. Mutuality of obligation means the employee is assured of a constant supply of work from the employer, and the employer expects the employee to take up work whenever there is a need. However, for self-employed contractors, the relationship between the contractor and the client is restricted to certain tasks or projects.

Any contract of service should have an ‘irreducible minimum of mutual obligation.’ This implies the engager’s obligation to compensate the worker, and the worker’s obligation to provide skills in return of such compensation. However, this ‘irreducible minimum of mutual obligation’ is possible in a contract for services as well as a contract of personal service. So the real nature of a contract cannot be determined by this factor alone.

The real test of mutuality of obligation is upon the expiration of the contract. For example, if a contract is renewed multiple times, this could imply a mutuality of obligation. According to HMRC, if a client provides regular work to a contractor, and the contractor accepts it, this could create a continuous contract of employment.

Because HMRC and external experts interpret the case law differently if there’s a dispute, most employment experts focus on highlighting non-mutuality of obligation, as opposed to showing absence of mutuality of obligation.

Things to watch out for:

Part and Parcel

Contractors should avoid becoming a part and parcel of the organisation. This implies getting all the facilities available to full-time staff, being a part of staff meetings, and attending social events meant for full-time staff. Being part and parcel increases the risk of a contractor coming inside IR35.


Usually, contractors don’t work exclusively for a single client, but work for multiple clients. Also, contractors may not continuously renew their contract with a single client; instead they may opt for another client after completion of a particular contract. Such non-exclusivity can help Tim if there’s an IR35 enquiry.

However, it should be noted that having multiple contracts alone doesn’t provide immunity from IR35. It is possible that one or more contracts or their working conditions may have employment-like features, and such contracts may come inside IR35.

Other important points:

Apart from the above, there are several other factors that can help Tim if there’s an IR35 enquiry.


All these factors are a hallmark of an independent business, and none of them exist in a relationship between full-time employees and their employers. With these precautions, contractors can ensure they are on the right side of IR35.

To get a further idea on the risk of being caught inside IR35, you can try out our business entity tests. At the end of the test, you will get your IR35 risk score in a graphical and easy-to-understand format.

Note that it is important to take every possible precaution to avoid being inside IR35. Otherwise, it could lead to serious tax implications.

Use our calculator to see the impact of IR35 on take-home pay.

The IR35 calculator is designed for illustration purposes only. Whilst we aim to deliver high accuracy, we make no guarantees on the accuracy of the financial calculations made.

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