Why Your Contract Matters So Much
When HMRC investigates a contractor's IR35 status, the first thing they ask for is the contract. It's the written record of what was agreed between you and the engager — and it either supports or undermines your outside IR35 position from the very first page.
A well-drafted contract can't guarantee you're outside IR35 on its own, because HMRC also looks at your actual working practices. But a badly drafted contract can put you inside IR35 even if you work in a genuinely self-employed way — because the contract tells a different story.
The checklist below covers the key areas in order of importance. Work through it for any new contract before you sign, and repeat it at every renewal.
⚠️ The contract vs reality problem
HMRC can look behind the contract. A spotless set of clauses won't save you if your actual working practices look like employment. Both the contract and the day-to-day reality need to support an outside IR35 position. See the working practices section below.
1. The Substitution Clause
This is the most important clause in your contract. A genuine, unconditional right of substitution is the strongest single indicator of outside IR35 status — because employees cannot send someone else to do their job.
✅ What a strong substitution clause looks like
✅The right rests with your limited company, not you personally
✅The client can only refuse a substitute on defined, reasonable grounds (skills, security clearance) — not at will
✅The cost of any substitute is borne by your company, not the client
✅The substitute does not need to be individually approved — just suitably qualified
✅There is no language saying "personal services" or "you must personally perform"
🚩 Red flags to watch for
🚩"Subject to client consent" with no defined criteria — gives the client an unlimited veto
🚩Contract specifies you personally by name or role ("[Name] must personally provide the services")
🚩Substitution clause exists but is contradicted elsewhere by "personal services" language
🚩No substitution clause at all
2. Control and Direction
The contract should make clear that the client specifies the outcome, but not the method. You should be engaged to deliver a result using your professional expertise, not to follow the client's internal process as a directed employee would.
✅ Strong control language
✅Contract is outcome-based: specifies deliverables, not working method
✅Hours and location are at your discretion ("as necessary to complete the services")
✅No obligation to attend specific meetings beyond what's needed to deliver the project
✅No reference to client's internal policies, performance reviews, or appraisal processes
✅No line management or reporting structure within the client's hierarchy
🚩 Red flags
🚩"The contractor shall work such hours as directed by the client" — this is employment language
🚩Obligation to follow the client's internal policies and procedures as if an employee
🚩Mandatory core hours or fixed location requirements
🚩Contract places you within the client's management structure with a named line manager
3. Mutuality of Obligation
Following the 2024 PGMOL ruling, MOO arguments have less standalone weight — but the contract should still reflect that neither party has ongoing obligations once the project ends. Avoid open-ended, continuously renewing arrangements where possible.
✅ What to look for
✅Contract has a defined end date — not open-ended or indefinitely rolling
✅No obligation on the client to offer further work beyond the contract term
✅No obligation on you to accept any further work offered at renewal
✅Payment is for services delivered — not a salary-style regular payment regardless of output
⚠️ Watch for
⚠️Contracts that have been rolled over continuously for years without renegotiation
⚠️Language implying ongoing retention ("the client wishes to retain the contractor on an ongoing basis")
⚠️Fixed monthly retainer regardless of actual work done — resembles a salary
4. Financial Risk and Business-Like Behaviour
Genuine contractors bear financial risk — they can lose money, they invest in their own equipment, and they can be held to account for substandard work. Employees don't bear these risks. Your contract should reflect this.
✅ Positive indicators
✅You are responsible for rectifying defective work at your own cost and time
✅You carry professional indemnity and public liability insurance (and the contract requires it)
✅You provide your own equipment and tools where practicable
✅Payment is conditional on delivery of agreed services — not a fixed regular amount regardless of output
🚩 Red flags
🚩Client provides all equipment and tools and you have no requirement to provide your own
🚩No liability for defective work — client accepts all risk on delivery
🚩Sick pay, holiday pay, or notice periods that mirror employment terms
5. Exclusivity
An exclusivity clause — requiring you not to work for other clients — is one of the strongest employment indicators in a contract. Genuine contractors are free to work for multiple clients. If a client insists on exclusivity, this needs to be flagged and ideally removed or limited.
✅ What you want
✅No exclusivity clause — you are free to work for other clients simultaneously
✅If a non-compete exists, it is narrowly defined (specific competitor names, limited duration)
🚩 Red flags
🚩You are required to give the client "first call" on your time or be available exclusively to them
🚩Broad non-compete preventing you from working in your sector for other clients during the contract
Know the cost before you sign
If you're uncertain whether a contract puts you inside or outside IR35, see exactly what the financial difference is at your day rate.
Calculate your take-home →
6. Working Practices — What the Contract Can't Cover
This is where many contractors trip up. A perfectly worded contract counts for less than people think if HMRC can demonstrate the day-to-day reality was different. HMRC will interview you, your client, and potentially your agency. They'll look for inconsistencies.
Keep an "outside IR35 evidence file" for each engagement. It doesn't need to be elaborate — a folder of documents that support your self-employed status:
✅ Evidence to keep
📄Copies of all contracts and renewal letters
📄Evidence of outcome-based working — project plans, deliverables, sign-off documents
📄Invoices raised by your company (not timesheets for hours worked like an employee)
📄Evidence of working for multiple clients — contracts or invoices for concurrent engagements
📄Records of any substitutes provided, or offers of substitution
📄Professional indemnity and liability insurance certificates
📄Marketing materials — website, LinkedIn, any evidence of being in business generally
📄Equipment purchase records if you provide your own tools
🚩 Practices that undermine outside IR35
🚩Using the client's email address as if you were an employee (john.smith@clientcompany.com)
🚩Appearing on the client's org chart, internal directory, or website as staff
🚩Attending company-wide all-hands meetings, social events, or team-building as if permanent staff
🚩Working exclusively for one client for years with no gaps and no other work
🚩Being managed, appraised, or performance-reviewed by the client's HR process
🚩Submitting weekly timesheets for hours rather than invoicing for deliverables
7. Status Determination Statement (SDS) — Medium & Large Clients
If your client is a medium or large company (or any public sector body), they must issue a Status Determination Statement (SDS) before your engagement begins. This is their written assessment of your IR35 status and the reasons for it.
Key points on SDS:
- The client must take reasonable care when making the determination — blanket inside IR35 decisions applied to all contractors without individual assessment do not meet this standard
- If you disagree with the determination, you have the right to formally challenge it — the client must respond within 45 days
- If the client fails to issue an SDS at all, the tax liability falls on them, not you
- A favourable SDS (outside IR35) provides some protection but does not guarantee HMRC will agree if they investigate
Small companies — self-assess
If your client qualifies as small (from 6 April 2026: turnover under £15m, balance sheet under £7.5m, or fewer than 50 employees — meeting at least two criteria), they are exempt from the off-payroll working rules. You self-assess your own IR35 status under the original Chapter 8 rules. See our guide to the April 2026 threshold changes to understand whether your client now qualifies.
When to Get a Professional Review
A self-review using this checklist is a useful starting point, but it has limits. A qualified IR35 specialist can identify nuanced language issues you might miss, advise on how to negotiate problem clauses, and provide a written opinion you can rely on if HMRC ever asks.
You should get a professional review when:
- Starting any new outside IR35 engagement, especially with a medium or large company
- Renewing a contract where the wording has changed
- You have any doubt about any clause in the contract
- The client has issued an inside IR35 SDS and you want to challenge it
- You are approaching a contract that has been continuously renewed for more than 2 years
Specialist providers include Qdos, Bauer & Cottrell, IR35 Shield, and Kingsbridge. Typical cost: £100–£250 per review. At most day rates, this is less than half a day's income — and the tax exposure it protects against is £10,000+ per year.
Frequently Asked Questions
What is an IR35 contract review?
An assessment of your contractor contract by a qualified IR35 specialist, examining whether the clauses support an outside IR35 position — particularly around substitution, control, and mutuality of obligation. A good professional review also looks at working practices, not just the contract wording.
How much does an IR35 contract review cost?
Typically £100–£250 from specialist providers. Some contractor accountants include reviews as part of their monthly fee. Given that being wrongly inside IR35 can cost £10,000–£20,000 per year in extra tax, the cost is small by comparison.
Do I need a new review each time my contract renews?
Yes — your IR35 status is assessed contract-by-contract. If wording has changed, a full review is recommended. If the contract is identical and nothing has changed in practice, a brief check at minimum. Don't assume a previous review covers a renewal.
My client wants to keep me on continuously. Is this a problem?
Long-running continuous contracts are an HMRC risk factor — they start to look like employment rather than discrete project engagements. You can mitigate this by ensuring there are genuine gaps between contracts (even short ones), renegotiating scope at each renewal, and maintaining clear project deliverables rather than open-ended availability.
Can I challenge my client's inside IR35 determination?
Yes. If a medium or large client issues an inside IR35 SDS and you disagree, you have the right to formally challenge it using the client's status disagreement process. The client must respond in writing within 45 days explaining why they are maintaining or changing their determination. If you're not satisfied, you can still raise the matter with HMRC directly.