The three IR35 tests
Three classic tests, all from case law, determine status:
- Control — does the client control HOW, WHEN, and WHERE you do the work? Genuine contractors typically control their own methods and hours.
- Substitution — can you send a substitute to do the work? A genuine right of substitution is one of the strongest indicators of being outside IR35.
- Mutuality of obligation (MOO) — is there an obligation for the client to provide ongoing work and for you to accept it? Genuine contractors take work project-by-project.
Plus minor indicators: do you provide your own equipment, take financial risk, work for multiple clients, etc.
What changed in April 2021
For contracts with medium or large private-sector clients (over 50 employees, £10.2M turnover, or £5.1M balance sheet), the end client now determines IR35 status, not the contractor. The client must issue a Status Determination Statement (SDS) to the contractor and the agency. If the client gets it wrong, they're liable for the unpaid PAYE/NI - not the contractor.
For small private-sector clients, the contractor's limited company still determines status (the pre-2021 rules continue to apply).
For all public-sector clients, the off-payroll rules have applied since April 2017.
What to do if your status is challenged
- Request the SDS in writing from the client - they're legally required to provide it.
- Disagree formally if you believe the determination is wrong - the client must respond within 45 days with reasoning.
- Get a contract and working-practices review from a specialist (typically £150-£400).
- Take out IR35 insurance if you're working at scale - typical cover is £100-£300/year and pays for tax investigations and potential settlements.
- Document the working relationship in writing throughout the contract - notes on control, substitution discussions, project autonomy.
Frequently asked questions
Can I be inside IR35 on one contract and outside on another?+
Yes - status is per contract, not per contractor. Many UK contractors run a mix. Inside contracts typically go via an umbrella, outside contracts via your limited company.
Does HMRC's CEST tool determine status?+
CEST gives an HMRC-aligned determination but is not legally binding. End clients use it to inform their SDS. A specialist contract review is more reliable than CEST alone.
What's the financial difference between inside and outside?+
At £500/day rate, inside IR35 take-home is roughly £77K/year; outside IR35 (Ltd co with optimal mix) is roughly £91K. The £14K difference grows at higher rates. See our take-home pay calculator for your numbers.
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